Unallowable purposes enquiries are fact-heavy and can be difficult to resolve, and the case law is still developing. The authorities to date have established that one must look to the subjective purposes of the company (usually represented by the directors) and the significance attached to those purposes to determine whether a loan relationship has an unallowable purpose. However, contentious questions remain around how tax and non-tax purposes are tested, the extent to which tax purposes can be inferred and the application of the unallowable purposes rules to commercial transactions. Particular care should be taken with intragroup borrowing and borrowing that might be said to be artificial or structured with tax in mind.
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Unallowable purposes enquiries are fact-heavy and can be difficult to resolve, and the case law is still developing. The authorities to date have established that one must look to the subjective purposes of the company (usually represented by the directors) and the significance attached to those purposes to determine whether a loan relationship has an unallowable purpose. However, contentious questions remain around how tax and non-tax purposes are tested, the extent to which tax purposes can be inferred and the application of the unallowable purposes rules to commercial transactions. Particular care should be taken with intragroup borrowing and borrowing that might be said to be artificial or structured with tax in mind.
If you are not a subscriber, subscribe now to read this content.
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