Double taxation relief could be claimed

A Ltd (a member of a Japanese banking group) lent $200m to its US subsidiary at 12% interest. It applied to the US authorities to obtain the benefit of the US-UK double tax treaty and hence make interest payments without deduction of tax. The US authorities refused under the limitation of benefits provisions in the treaty and also refused to use the discretionary powers to relieve the company of the obligation to deduct tax at source. The payments were therefore made under deduction of tax. 

A Ltd filed its UK tax return on the basis that it was entitled to unilateral relief under TA 1988 s 793A for the US tax suffered at source. HMRC issued closure notices denying relief on the basis that s 793A prevented unilateral relief (where there is an ‘express provision’ in a double taxation agreement preventing credit relief unilateral relief cannot be granted). 

The First-tier...