Muller UK and Ireland Group LLP & Ors v The Commissioners for HMRC
[2024] UKUT 273 (TCC)
BCM Cayman LP & Anor v The Commissioners for HMRC
12 October 2023
[2023] EWCA Civ 1179
Court of Appeal
Two companies argued they shouldn't pay taxes on big profits. The judge decided the companies were ultimately responsible for the money, despite some complicated financial arrangements, and had to pay the taxes. They also couldn't deduct interest on loans because those loans were for investment, not for their day-to-day business.
Key Facts
- •BlueCrest group carried on investment management, partly through a UK limited partnership (UK LP).
- •19% of UK LP's equity was sold, with the buyers forming Cayman LP to hold their interests.
- •Cayman Ltd, wholly owned by Cayman Holdings, was Cayman LP's general partner.
- •Cayman Ltd borrowed $200 million and issued $165 million in loan notes to fund the acquisition.
- •RBS, initially a Cayman LP partner, assigned its interest to Fyled (later Morgan Stanley).
- •Total Return Swaps (TRS) arrangements existed between Cayman Holdings and RBS/Fyled/MS Cooper.
- •UK LP allocated profits, prioritizing interest payments on Cayman Ltd's borrowings before other allocations.
- •Cayman LP allocated profits to pay interest on Cayman Ltd's borrowings and loan notes, then to limited partners.
- •Superprofits, exceeding a benchmark, were allocated to the Corporate Limited Partner (RBS/Fyled).
- •The purpose of Superprofits allocation was to enable Cayman Ltd to prepay its borrowings.
- •Superprofits were paid to Fyled on three occasions, totaling £47,126,924.
Legal Principles
Partnership is a relationship between persons carrying on a business in common with a view to profit; requires agreement and consent.
Partnership Act 1890, Halsbury's Laws of England, Lindley and Banks on Partnership
In determining a statutory partnership, substance over form prevails; consider intention and reality.
Sotheby’s v Mark Weiss Ltd [2020] EWCA Civ 1570
A company is not chargeable to corporation tax on profits accruing in a fiduciary or representative capacity, except for its own beneficial interest.
CTA 2009, section 6(1)
For corporation tax, a firm has no separate legal personality from its members; profits are allocated according to profit-sharing arrangements.
CTA 2009, sections 1258, 1262
The Ramsay approach requires a purposive construction of statutory provisions to determine whether a transaction, viewed realistically, answers the statutory description.
W T Ramsay v Inland Revenue Commissioners [1982] AC 300; Barclays Mercantile Finance Ltd v Mawson [2004] UKHL 51
A loan is for the purposes of a trade if it serves the purposes of that trade; a close nexus or direct link is required.
CTA 2009, section 297; CIR v Anglo-Brewing Company Ltd (1925) 12 TC 803; Vodafone Cellular v Shaw [1997] STC 734
Outcomes
Appeal dismissed regarding profit allocation.
Fyled was not a partner in UK LP/LLP; Superprofits were allocated to Cayman Ltd as beneficial owner, not fiduciary.
Appeal dismissed regarding interest deductibility.
Cayman Ltd's borrowings were not for the purposes of UK LP's trade, but for investment in UK LP; therefore, interest was not deductible under trading loan relationship rules.
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