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Irish Bank Resolution Corporation Ltd (in special liquidation) and another v HMRC

In Irish Bank Resolution Corporation Ltd (in special liquidation) and another v HMRC [2020] EWCA Civ 1128 (28 August) the Court of Appeal held that HMRC was entitled to disallow interest deductions claimed by the UK permanent establishments (PEs) of two Irish companies.

The taxpayers were Irish companies that had PEs in the UK. When calculating their UK corporation tax liability the PEs claimed deductions in respect of interest which HMRC disallowed. UK PEs are required to calculate UK corporation tax on a portion of the profits of the company of which it is a part using the ‘separate enterprise principle’ and on the assumption that the PE has such equity and loan capital as it could reasonably be expected to have as a separate enterprise. HMRC applied this assumption using a capital attribution tax adjustment to attribute to each PE a notional amount of ‘free’ capital...

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