Key Facts
- •JTI Acquisition Company (2011) Limited (appellant) issued loan notes to Joy Technologies Inc (JTI) to fund the acquisition of LeTourneau Technologies Inc (LTT).
- •HMRC contended the loan was for an "unallowable purpose" under section 442 of the Corporation Tax Act 2009 (CTA 2009), disallowing interest deductions.
- •The acquisition structure involved a nine-step plan designed to minimize UK corporation tax.
- •The appellant claimed corporation tax debits representing interest payable on the loan notes, which were surrendered to other UK group companies.
- •The interest deductions were not matched by taxable receipts in the US or the Cayman Islands.
- •The FTT and UT found the loan's main purpose was tax avoidance, disallowing the interest deductions.
Legal Principles
A company has an "unallowable purpose" if its purposes include one not amongst its business or commercial purposes.
Section 441 and 442, CTA 2009; Travel Document Service v Revenue and Customs Commissioners [2018] EWCA Civ 549
A tax avoidance purpose is not necessarily fatal; it's considered a business or commercial purpose unless it's the main purpose or one of the main purposes.
Section 442(4), CTA 2009; Travel Document Service v Revenue and Customs Commissioners [2018] EWCA Civ 549
The company's subjective purposes matter, considering the intentions and acts of relevant decision-makers (generally the board).
IRC v Brebner [1967] 1 All ER 779; BlackRock HoldCo 5, LLC v Revenue and Customs Commissioners [2024] EWCA Civ 330; Kwik-Fit Group Ltd v Revenue and Customs Commissioners [2024] EWCA Civ 434
The use to which borrowed funds are put is relevant but not determinative of the purpose of the borrowing.
BlackRock HoldCo 5, LLC v Revenue and Customs Commissioners [2024] EWCA Civ 330; Kwik-Fit Group Ltd v Revenue and Customs Commissioners [2024] EWCA Civ 434
Apportionment of debits is required if attributable to both allowable and unallowable purposes; if solely attributable to an unallowable purpose, no apportionment is needed.
Section 441(3), CTA 2009; BlackRock HoldCo 5, LLC v Revenue and Customs Commissioners [2024] EWCA Civ 330; Fidex Ltd v Revenue and Customs Commissioners [2016] EWCA Civ 385
Outcomes
Appeal dismissed.
The FTT and UT correctly found the appellant's main purpose in issuing the loan notes was tax avoidance; no commercial purpose was established.
Interest deductions disallowed.
The loan relationship had an unallowable purpose under section 442 CTA 2009, as the main purpose was securing a tax advantage.