Section 209(2)(e)(iii) ICTA 1988 and Limited Recourse Loans

Ross Fraser and Isaac Zailer, Herbert Smith December 2001

Introduction

In an article published in Tax Journal some four years ago, one of us discussed the UK tax treatment of limited recourse loans in the light of the provision of section 209(2)(e)(iii) ICTA 1988

. Since that time there has been a substantial shift in the relevance of the principles of the Treaty of Rome to taxation issues, and this, coupled with the fact that in practice section 209(2)(e)(iii) applies to non-UK companies only, may cast some further doubt on the validity of the Inland Revenue’s stated position on limited recourse loans. There has also been a relatively recent amendment to section 209(2)(e)(iii), in the form of the newly introduced section 209(3B). In the light of these matters we seek in this article to revisit the issues associated with the UK tax treatment of limited recourse loans.