Thin cap success

The claimant companies were UK-resident subsidiaries of multi-national groups. They claimed UK thin cap provisions breached article 43 of the EC Treaty and claimed compensation.

The High Court ruled the provisions infringed article 43 because they did not provide an independent defence of genuine commercial justification. They were not proportionate in their aim of preventing abusive tax avoidance.

HMRC had not shown that the transactions carried out by the claimants had been purely artificial. Thus the thin cap rules should be disapplied to those transactions.

However where a loan had made to a UK subsidiary with an EU parent but the lending company was not EU resident article 43 would not be relevant. In this respect the court found in favour of HMRC.

This apart the taxpayers’ appeal was allowed.

Peter Cussons head of EU direct tax group at PricewaterhouseCoopers remarked: ‘The implications...