Key Facts
- •UK Care No. 1 Limited (UKC1), a Guernsey company, issued loan notes secured by UK care homes.
- •BUPA Group acquired UKC1, making it UK resident, and redeemed the loan notes early.
- •Redemption resulted in a £150m accounting loss for UKC1.
- •HMRC initially disallowed the entire loss but later sought to disallow only £94m, claiming it was referable to a time when UKC1 was non-UK resident.
- •UKC1 argued that no part of the loss was referable to the pre-migration period and that the debit related to an expense, not a loss.
Legal Principles
Section 327 CTA 2009 disallows losses from loan relationships referable to times when the company wasn't subject to UK taxation.
Corporation Tax Act 2009, Section 327
Statutory interpretation should be purposive, considering commercial reality.
Rossendale BC v Hurstwood Properties (A) Limited [2022] AC 690
A loss may exist before crystallisation by an event like sale or impairment recognition.
Case arguments and judge's interpretation
Referability is distinct from computation; a factor used in calculating loss doesn't automatically make the loss referable to that factor.
Case arguments and judge's interpretation
Section 306A CTA 2009 distinguishes between profits/losses from loan relationships and expenses incurred under them.
Corporation Tax Act 2009, Section 306A
Section 327's application is an objective test, not dependent on the taxpayer's subjective belief.
Judge's interpretation
Outcomes
Appeal partially successful; £56,845,205 of the loss allowed.
This portion of the loss, relating to the penalty for early redemption, was not referable to the pre-migration period.
£93,903,841 of the loss disallowed.
This part of the loss was referable to the pre-migration period due to changes in market conditions and expenses incurred before UKC1 became UK resident. The judge rejected the argument that the loss was an expense rather than a loss under Section 327.