UK “Thin capitalisation” legislation is an anti-avoidance measure which provides that interest payments made by a UK resident company to certain non-resident group members are treated as distributed profits and are therefore taxed (unlike similar payments to UK resident group members, which are not). The legislation aims to prevent the artificial reduction of taxable profits through the distribution of profits under the guise of tax-deductible interest payments. Following a claim that the legislation discriminates between UK and non-UK companies, the High Court in London referred questions to the European Court of Justice (ECJ) on the compatibility of the legislation with EU law. On 13 March the ECJ ruled that the legislation does constitute a restriction on the freedom of establishment within the EU in those cases where the loan is granted by a controlling company in another EU Member State. However, the thin cap legislation could be justified if it was based on objective elements making it possible to identify purely artificial transactions, and provided that in such cases the interest payment was taxable only to the extent that it exceeded an arm’s length amount.