JTI Acquisition Company (2011) Limited v The Commissioners for HMRC
[2024] EWCA Civ 652
JTI Acquisitions Company (2011) Limited v The Commissioners for HMRC
7 August 2023
[2023] UKUT 194 (TCC)
Upper Tribunal
A company tried to get a UK tax break on a loan used to buy a US company. The taxman said the whole plan was designed to get that break, not for any real business reason. The court agreed with the taxman.
Key Facts
- •JTI Acquisitions Company (2011) Limited (appellant) appealed an FTT decision disallowing loan interest deductions.
- •The appellant, a UK subsidiary of a US multinational, used a complex intra-group loan structure to finance a US acquisition.
- •HMRC denied the interest deductions under the 'unallowable purpose' rules (ss. 441 and 442 CTA 2009).
- •The structure involved a UK company, a Cayman Islands company, and US entities, designed to create a UK tax deduction without a matching US tax charge.
- •The FTT found that securing a UK tax advantage was the main purpose of the appellant's participation in the loan relationship.
- •The appellant argued that the legislation should focus solely on the borrowing entity's purpose, not the group's overall structure.
Legal Principles
Unallowable purpose rules apply when a company's main or one of its main purposes for being a party to a loan relationship is to secure a tax advantage.
Sections 441 and 442 CTA 2009
The determination of purpose requires consideration of all the facts and circumstances, including why a particular entity was chosen within a group structure.
BlackRock Holdco 5 LLC v HMRC [2022] UKUT 199 (TCC), Kwik-Fit Group Ltd and others v HMRC [2022] UKUT 314
Commercial asset purchases financed with arm's-length borrowing do not automatically preclude the application of unallowable purpose rules.
Travel Document Service and another v HMRC [2018] EWCA Civ 549, Kwik-Fit Group Ltd and others v HMRC [2022] UKUT 314
The use to which borrowing is put is relevant but not determinative in assessing purpose.
Travel Document Service and another v HMRC [2018] EWCA Civ 549
The 'tax advantage' under ss. 441 and 442 is confined to UK taxes.
Sections 1118(1) and 1119 CTA 2010
Outcomes
Appeal dismissed.
The Upper Tribunal (UT) rejected the appellant's statutory interpretation, finding that the FTT correctly considered all facts and circumstances, including why the appellant was chosen as the borrowing entity. The UT found that the FTT's conclusion that securing a UK tax advantage was the main purpose was supported by the evidence.
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