HMRC has issued updated thin capitalisation guidance. John Neighbour and Daniel Head explain the new challenges for taxpayers that have borrowed from connected parties
Before considering the updated guidance in detail it is worth understanding the background to the revision. In 2008 HMRC initiated an extensive review with the intention of ensuring its guidance reflected the changes that had occurred in the tax and wider economic environment. Readers with prior experience of dealing with thin cap issues may be familiar with HMRC's 1:1 debt to equity and 3:1 interest cover 'rules of thumb' that were published in 1995 and have subsequently been seen by many as safe harbours. Whilst some taxpayers may have felt it inappropriate to apply such standard ratios to their own position others preferred adegree of certainty afforded by having published 'rules of thumb'.
However the arm's-length principle does not lend itself...
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HMRC has issued updated thin capitalisation guidance. John Neighbour and Daniel Head explain the new challenges for taxpayers that have borrowed from connected parties
Before considering the updated guidance in detail it is worth understanding the background to the revision. In 2008 HMRC initiated an extensive review with the intention of ensuring its guidance reflected the changes that had occurred in the tax and wider economic environment. Readers with prior experience of dealing with thin cap issues may be familiar with HMRC's 1:1 debt to equity and 3:1 interest cover 'rules of thumb' that were published in 1995 and have subsequently been seen by many as safe harbours. Whilst some taxpayers may have felt it inappropriate to apply such standard ratios to their own position others preferred adegree of certainty afforded by having published 'rules of thumb'.
However the arm's-length principle does not lend itself...
If you or your firm subscribes to Taxjournal.com, please click the login box below:
If you do not subscribe but are a registered user, please enter your details in the following boxes:
