DeKaCo is incorporated in Country A and is treated as an opaque entity under Country A's domestic law. DeKaCo has a wholly owned subsidiary, HoraCo, in Country B which is treated as transparent by the authorities of Country A and as opaque by Country B's authorities. DeKaCo has recently granted a loan to HoraCo. The loan was organised in Country B. HoraCo has paid DeKaCo interest of £900,000. Country B does not apply a withholding tax to interest payments. To date, Country A has not required DeKaCo to include the interest income in its, Country A's, tax return, while Country B has allowed HoraCo a deduction for interest payments in these circumstances. Countries A and B are both OECD members and are major trading partners of each other. It is anticipated that there will continue to be many transactions of the type outlined above occurring between taxpayers in the two States. DeKaCo and HoraCo have been advised by their respective tax consultants that transactions such as the type outlined above may no longer be treated in the same way in the future and that Countries A and B are seeking advice as to how such transactions should be treated. 

Analyse the given case, advising Countries A and B on all relevant issues, addressing possible consequences and impacts on their revenue.

Answer rating: 100% (QA)

The case involves crossborder transactions between DeKaCo incorporated in Country A and its wholly owned subsidiary HoraCo in Country B specifically c... View the full answer