JTI Acquisitions Company (2011) Limited v The Commissioners for HMRC
[2023] UKUT 194 (TCC)
JTI Acquisition Company (2011) Limited v The Commissioners for HMRC
13 June 2024
[2024] EWCA Civ 652
Court of Appeal
A company used a complex loan structure to buy another company, lowering its UK taxes. The courts decided the main reason for the loan was tax avoidance, not the actual purchase, so the company couldn't deduct the interest from its taxes. It didn't matter that the company also had a legitimate reason for borrowing; the tax avoidance aspect was the most significant.
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.
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