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Loans from UK company to US subsidiary

Loans from UK company to US subsidiary

If a UK Group Ltd company lends to its US Inc subsidiary, are there any tax implications on what interest rates to use in both UK or US? We've used the US federal rates - but can the UK company charge more than those?

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By Exector
20th Sep 2012 17:18

Any tax implications for UK co is under the UK Transfer Pricing provisions. If you can establish that it is equivalent to  arm's length commercial rate/terms, taking account all the circumstances (amount, duration,security, risks etc) then no, HMRC can't just substitute a different one because they want to- it as all about demonstrating it is comparative to arm's length terms that would be negotiated between unrelated parties. Also assuming that the overall group is not an SME . If it is, then UK co can claim the SME exemption from the TFP rules, tho HMRC can set aside in some circumstances where a Medium Enterprise and considered high risk.

 

Edit. perhaps should add that the TFP issue for UK TAx regime pov is of course that the UK co is not undercharging for loaned funds (so reducing taxable int received). However the US have equivalent TFP rules and IRS will be equally keen to ensure that US co not claiming excessive deduction for int paid!

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