Is claiming tax relief for interest paid really tax avoidance?
Press reports have indicated that companies have avoided tax by claiming large tax deductions for interest payments, for example, on debt that funded its buy out.
Companies are being castigated as tax avoiders for claiming interest relief within limits set out in the tax legislation. Surely, claiming interest relief in accordance with the law is not tax avoidance. The companies have not done anything illegal; the deduction of finance costs is not included within definitions of tax avoidance.
HMRC has a range of anti avoidance measures to prevent interest deductions where there is tax avoidance and, generally, UK companies claiming tax relief for interest need to demonstrate that these are on an arm’s length terms. HMRC can challenge excessive payments.
Claiming relief within the law for actual and reasonable costs is surely not tax avoidance.
Date: 8th November, 2013
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