No loan relationship

The taxpayer company was a wholly owned subsidiary of Carat International which was itself wholly owned by Aegis plc.

Between 2001 and 2004 inter-company transactions took place between MJP and Aegis with the result that by 1 January 2004 Aegis owed the taxpayer more than £6.8m.

The companies made an agreement to the effect the taxpayer had loaned Aegis the sum.

Aegis owed the taxpayer a further £78 611 in respect of interest by 26 March 2004.

One the same date the two businesses signed a deed of waiver under which the taxpayer surrendered £6.7m. It claimed a deduction in its 2004 corporation tax computation for £6.6m: the waived amount less a foreign exchange difference of £14 000.

HMRC refused the claim on the ground no loan relationship existed between the taxpayer company and Aegis under FA 1996 s 81 (now CTA 2009 ...