UK vs Irish Bank Resolution Corporation Limited and Irish Nationwide Building Society, October 2019, UK Upper Tribunal, UKUT 0277 (TCC)

This case concerned deductibility of notional interest paid in 2003-7 by two permanent establishments in the UK to their Irish HQs.

The loans – and thus interest expenses – had been allocated to the PEs as if they were separate entities.

The UK tax authorities held that interest deductibility was restricted by UK tax law, which prescribed that PE’s has such equity and loan capital as it could reasonably be expected to have as a separate entity.

The UK taxpayers, refered to  Article 8 of the UK-Ireland tax treaty. Article 8 applied the “distinct and separate enterprise” principle found in Article 7 of the 1963 OECD Model Tax Convention, which used the language used in section 11AA(2). Yet nothing was said in the treaty about assumed levels of equity and debt funding for the PE.

In 2017, the First-tier Tribunal found in favour of the tax authority, and in October 2019 the Upper Tribunal also dismissed the taxpayers’ appeals.



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