News
‘Thin cap’ rules could cost the HMRC hundreds of millions
24 November, 2009
It has recently been predicted by some leading accountants that a High Court ruling brought against the HMRC by companies that include IBM, Volvo and Siemans could see the taxman paying hundreds of millions of pounds in damages.
Thin Cap Group Litigation Order or ‘Thin Cap’ as it is known, has seen businesses claim for restitution and damages for the extra corporation tax paid as a result of interest charged on inter-company loans.
This ruling, possibly the first of corporation tax cases where HMRC has been held as potentially liable for damages, will mean that as well as paying back taxes, the HMRC may well be held responsible to compensate the complainants advisors’ fees.
Head of EU direct tax group at Pricewaterhouse Coopers, Mr. Peter Cussons, commented that a claim for restitution simply rules that the additional tax paid is unlawful, and HMRC would have to pay it back. However a claim for damages is a more far-reaching remedy. It could potentially include interest on tax paid, foreign tax paid and legal fees he concluded.
The ruling would only apply to tax charged on interest paid before the rules were changed on 1 April 2004. A small relief for the HMRC was that the High Court judge ruled that it would only apply to transactions that took place before 1 April 2004, but after another key court ruling in December 2002.
Head of international corporate tax at KPMG, Mr. Chris Morgan, has warned that the 6 year time-limit rule for claiming for damages or restitution still applies, and anyone who had not made a claim before December 2008 has lost their right to claim.
The HMRC have said they are considering the decision before deciding whether or not to appeal.
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