Post by Sapphire Capital on Aug 13, 2008 0:55:00 GMT 4
UK government seeks changes to rules on interest between related parties
The UK tax authorities have proposed amendments to corporation tax rules on late payments of interest between connected companies.
The Finance Act 1996 does not allow a company to claim tax relief on interest that is paid late to a creditor that is a connected party. Late means '12 months of the end of the accounting period in which it accrues, and is not brought into account by the creditor under the loan relationships rules'. The company owing the interest can get a deduction when it is paid and not at the time it is accounted for. The issue arises where the interest is owed to an overseas company in the same group. Recent European Court of Justice decisions suggest that allowing a deduction only when it is paid is discriminatory.
HM Revenue & Customs (HMRC) puts forward two options: extending the restriction on interest paid late to loans between UK companies, as well as between UK and overseas companies, or replacing the relevant provisions in the Finance Act 1996 with an anti-avoidance rule.
While the consultation is under way, the tax authorities have stated in a brief that they will not seek to apply the late payment of interest rules to corporate tax returns filed on or after July 28, when the brief was issued, where the creditor is a non-resident UK company. That will also apply where enquiries into tax returns relating to the issue have not been closed.
HMRC has invited a subgroup of its tax and accountancy working group to comment on the proposals. The subgroup is made up of taxpayers such as Barclays, Centrica, Citigroup and Rolls-Royce, representative bodies such as the Chartered Institute of Taxation, the International Swaps and Derivatives Association and the London Investment Banking Association and advisers such as the big-four accounting firms, Allen & Overy, Clifford Chance and Linklaters.
The UK tax authorities have proposed amendments to corporation tax rules on late payments of interest between connected companies.
The Finance Act 1996 does not allow a company to claim tax relief on interest that is paid late to a creditor that is a connected party. Late means '12 months of the end of the accounting period in which it accrues, and is not brought into account by the creditor under the loan relationships rules'. The company owing the interest can get a deduction when it is paid and not at the time it is accounted for. The issue arises where the interest is owed to an overseas company in the same group. Recent European Court of Justice decisions suggest that allowing a deduction only when it is paid is discriminatory.
HM Revenue & Customs (HMRC) puts forward two options: extending the restriction on interest paid late to loans between UK companies, as well as between UK and overseas companies, or replacing the relevant provisions in the Finance Act 1996 with an anti-avoidance rule.
While the consultation is under way, the tax authorities have stated in a brief that they will not seek to apply the late payment of interest rules to corporate tax returns filed on or after July 28, when the brief was issued, where the creditor is a non-resident UK company. That will also apply where enquiries into tax returns relating to the issue have not been closed.
HMRC has invited a subgroup of its tax and accountancy working group to comment on the proposals. The subgroup is made up of taxpayers such as Barclays, Centrica, Citigroup and Rolls-Royce, representative bodies such as the Chartered Institute of Taxation, the International Swaps and Derivatives Association and the London Investment Banking Association and advisers such as the big-four accounting firms, Allen & Overy, Clifford Chance and Linklaters.