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Written question asked by Lord Myners (Crossbench) on Monday, 2 October 2017, in the House of Lords. It was due for an answer on Monday, 16 October 2017. It was answered by Lord Bates (Conservative) on Monday, 16 October 2017 on behalf of the Treasury.

Utilities: Loans

Question

To ask Her Majesty's Government whether they intend to examine the rate of interest charged on loans from shareholders to UK utilities to establish (1) whether the terms, including rates of interest, are commercial, and (2) the tax deductibility of such interest is legitimate.

Answer

The capital structure of a business and the terms of any loan agreements is a commercial decision for the business and its investors or lenders.

Interest expense incurred by a business is generally deductible in calculating taxable profits, but a number of tax rules limit such deductions. These tax rules apply to utilities just as to other sectors. In particular, transfer pricing rules disallow interest deductions in excess of what would be paid to an independent lender. And an unallowable purpose rule prevents deductions for interest on a loan that does not have a commercial purpose. HMRC robustly enforces these rules to ensure they are applied correctly.

Furthermore, in line with OECD recommendations and following extensive consultation, the government is introducing new corporate interest restriction rules in the current Finance Bill to limit the deductions that a business can obtain for financing costs based on the amount of its earnings taxable in the UK.

Secondary information

Type
Written question
Reference
HL1676
Session
2017-19
Subjects
Interest rates Loans Utilities Tax allowances Shareholders
Link
View this Written question on www.parliament.uk