New Anti-Avoidance Rules on Transfer Pricing - Affects Loans Made From 4 March Onwards

Originally published March 2005

The Inland Revenue has announced new anti-avoidance legislation aimed at attacking structures used in private equity transactions to avoid the application of the transfer pricing rules. These rules prevent a company claiming tax relief for interest paid on certain loans to connected parties.

We have not yet seen the draft legislation (it should be in the draft Finance Bill) and the exact extent of the changes will not become clear until then. However it appears that the legislation will not just hit structures put in place deliberately to avoid the rules but will also hit many structures where we would not have expected the transfer pricing rules would apply - including many joint venture arrangements outside the private equity sector. The Inland Revenue also announced changes to the circumstances in which a corporation tax deduction will be allowed for interest only when it is paid rather than when it accrues. This will again hit the private equity