Parent co (Dubai) writes-off a loan owed by Subsid (UK).
Post w/o, P sells S. I'm preparing the YE for S - is the w/o taxable? I'd normally say the debit/credit is a £nil tax transaction, but the foreignness leaves me in the unknown ... can anyone shed any light on this?
Thanks
Replies (21)
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The residence status of the creditor company is irrelevant in this case (assuming that it’s a straightforward loan of money from one company to the other).
Does it depend whether there is a mismatch?
I think atlea should enjoy reading TIOPA Part 6A (I don't see why I should be the only one that doesn't understand it!)
Part 6A is a possibility I suppose but I doubt it in this case. Not enough info to be sure.
In any event, the residence status of either company is not itself relevant.
Well, simplistically (and I like simple), if Dubai gives tax relief for the write off and the UK doesn't tax it, there's a mismatch.
It seems to me to be behoven on atlea either to establish that Part 6A would not apply even if such a mismatch exists (good luck with that) or (simple - and I like simple... did I say?) to find out how the parent treated the write off. Specifically, was tax relief obtained/will it be obtained in Dubai?
You've dragged me into reading the legislation.
I was hoping to avoid that.
If they are going to read s259CB(3), don't they also have to read s259CC(3)?
The issue in hand should be relatively straightforward. Essentially, a ‘mismatch’ arising because of the effect of certain LR rules is outside the scope of the mismatch rules. In other words, even if Dubai Co is entitled to a deduction, the non-tax status of the corresponding UK credit arises as a consequence of a relevant LR rule.
If I read INTM551130 correctly, HMRC does not necessarily agree with Wilson's "straightforward" interpretation.
I think that you have read the guidance correctly. I do not think that HMRC have read the legislation correctly.
Can you think of an example of a loan relationship mismatch which would be caught by the legislation, on your interpretation?
There are plenty of examples around -eg payer treats payment as interest and recipient treats receipt as dividend.
That's not an example of a loan relationship mismatch and would be caught by one of the other chapters. When does the section you picked out apply? On your reading, doesn't it always disapply itself?
(Sorry if I'm being daft... treated myself to a lie-in today and have only just woken up... I reserve the right to eat humble pie when I get to work and look it up.)
UKCo borrows from ForeignCo. A loan relationship.
Accounting and tax law allows ForeignCo to treat interest received as dividend (exempt). A mismatch.
Put the two together...
But if that isn’t a loan relationship mismatch then perhaps there are fewer examples than I thought.
I wonder whether both of us may have misread HMRC's guidance. In the preceding paragraphs, it says: "The legislation requires a consideration of whether any excess of the deduction above the ordinary income would have been less if the terms or any other feature of the financial instrument had been different. If so then…". The examples it then points to, notably that at INTM551300, have the debt/equity mismatch. It now seems to me that HMRC agrees your conclusion (though, possibly, for a different reason - that's not clear to me without spending more time on this than I need to).
The problem with that example is that HMRC don’t explain why the parent would be allowed a deduction for the write-down.
Ignore that - I had missed the part about 259CB(3)