The Interest and Royalties Directive (2003/49) prohibits the imposition of taxes on interest payments by States other than the resident state of the lender. Does this prohibit disallowing interest deductions in cross border contexts where the deduction would also be disallowed internally? If so this prohibition would then extend to cases where the loan was a pure tax scheme.

According to the Advocate General, no. For her, the analysis is quite different for a discrimination claim (e.g. as in the Thin Cap GLO) as it is for a claim based solely on the application of the Directive. The Directive prohibits only the imposition of a tax charge on the lender (e.g. a withholding tax) and does not affect the prior stage of establishing the basis of assessment of the borrower.