No deduction

Debt claimed under the loan relationship rules

Stagecoach Group had several subsidiaries in which it held 100% of the share capital including T I (a subsidiary of T) and Stagecoach Holdings which was a subsidiary of I. A dispute arose as to the correct tax treatment of a scheme for the recapitalisation of two companies Holdings and Stagecoach Services using forward subscription agreements. These provided that Group’s funding would be calculated by reference to sums to be paid in repayment by T of a pre-existing loan to it from Group. In exchange Holdings and Service agreed to issue ordinary shares to their immediate parent companies.

Group claimed a deduction for the debit under the loan relationship rules (CTA 2009 s 320). HMRC disallowed the claim saying the debit was due to the forward subscription agreements.

The First-tier Tribunal held that the debit...