ECJ Ruling Could Result In £1 Billion Loss For UK Government

by Jason Gorringe, Tax-News.com, London

16 December 2002

According to a report in the Times on Friday, a landmark ruling by the European Court of Justice could end up costing the UK government in excess of £1 billion.

The verdict, delivered in Luxembourg on Thursday announced that certain EU member states were wrong to try to close a loophole which allows multinational companies to shift their debt around solely for tax purposes. The Times revealed that:

'The ruling centres on the way multinational companies artificially pile debt on to subsidiaries in some countries. Any profits generated by such subsidiaries can be channelled back to the parent in the form of interest payments against the debt, rather than as pure profit. Many tax authorities, including those in the UK and Germany, have tried to close the loophole by trying to restrict the amount of debt parent companies can dump on local subsidiaries.'

Commenting on the ECJ's decision, international corporate tax partner at PricewaterhouseCoopers, Peter Cussons warned that this ruling is likely to lead to similar claims in the future, and suggested that the government is unprepared for this eventuality:

'The alarming thing is that there is no provision in the Chancellor's Red Book for this,' he told the UK newspaper, observing that: 'The most powerful force in tax in Europe today is not national parliaments or the European Commission but the European Court of Justice.'

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