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Landmark thin capitalisation case

Under the 'thin cap' provisions HMRC seeks to disallow loan interest on the basis that no third party lender would make loans that exceeded the amount of equity in a company. However, in a recent case, judges broadly ruled in favour of the business.

The judges said UK law should be disapplied where the lending (within the EU only) was for overriding commercial reasons and that it should be for HMRC to demonstrate that the lending was not commercial.

HMRC are unlikely to be happy with this result.

Just a word of warning though - loans from non-EU companies remain a potential issue.

Cathy Corns is a tax adviser and a partner at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Cathy you can call her on 01908 605552. 



Date: 13th January, 2010
Author: Cathy Corns


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