Author: Courts of the UK

UK vs BlackRock, July 2022, Upper Tribunal, Case No [2022] UKUT 00199 (TCC)

UK vs BlackRock, July 2022, Upper Tribunal, Case No [2022] UKUT 00199 (TCC)
In 2009 the BlackRock Group acquired Barclays Global Investors for a total sum of $13,5bn. The price was paid in part by shares ($6.9bn) and in part by cash ($6.6bn). The cash payment was paid by BlackRock Holdco 5 LLC – a US Delaware Company tax resident in the UK – but funded by the parent company by issuing $4bn loan notes to the LLC. In the years following the acquisition Blackrock Holdco 5 LLC claimed tax deductions in the UK for interest payments on the intra-group loans. Following an audit in the UK the tax authorities disallowed the interest deductions. The tax authorities held that the transaction would not have happened between independent parties. They also found that the loans were entered into for an unallowable tax avoidance purpose. A UK taxpayer can be denied a deduction for interest where a loan has an ... Read more

UK vs NCL Investments Ltd, March 2022, UK Supreme Court, Case No [2022] UKSC 9

UK vs NCL Investments Ltd, March 2022, UK Supreme Court, Case No [2022] UKSC 9
The companies NCL Investments Ltd and Smith & Williamson Corporate Services Ltd (the Companies) had granted its employees stock options to acquire shares in the ultimate holding company, Smith & Williamson Holdings Limited (SWHL). The companies employ staff and make those staff available to other companies in the group in return for a fee. That fee is based on the costs that the companies incur in employing the staff, marked up with a profit element. The Companies claimed deductions in the computation taxable profits. The tax authorities accepted that IFRS2 required the Companies to recognise an expense in their income statements equal to the fair value of the options, but held that the debits were inapt to affect the profits of the Companies for corporation tax purposes. These transactions were treated by IFRS2 as a capital contribution (benefit) granted by SWHL to the Companies. The ... Read more

UK vs G E Financial Investments Ltd., June 2021, First-tier Tribunal, Case No [2021] UKFTT 210 (TC), TC08160

UK vs G E Financial Investments Ltd., June 2021, First-tier Tribunal, Case No [2021] UKFTT 210 (TC), TC08160
The case concerned a complex financing structure within the General Electric Group. The taxpayer, GE Financial Investments Ltd (GEFI Ltd), a UK resident company was the limited partner in a Delaware limited partnership, of which, GE Financial Investments Inc (GEFI Inc) a Delaware corporation was the general partner. GEFI Ltd filed UK company tax returns for FY 2003-2008 in which the company claimed a foreign tax credit for US federal income tax. In total, US federal income taxes amounted to $ 303 millions and exceeded the amount of tax due in the UK. The tax authorities opened an enquiry into each of GEFI’s company tax returns for the relevant period, and subsequently issued an assessment where the claims for foreign tax credits was denied in their entirety. Judgement of the Tax Tribunal The tribunal dismissed the appeal of GEFI Ltd and ruled that the UK ... Read more

UK vs GE Capital, April 2021, Court of Appeal, Case No [2021] EWCA Civ 534

UK vs GE Capital, April 2021, Court of Appeal, Case No [2021] EWCA Civ 534
In 2005 an agreement was entered between the UK tax authority and GE Capital, whereby GE Capital was able to obtain significant tax benefits by routing billions of dollars through Australia, the UK and the US. HMRC later claimed, that GE Capital had failed to disclose all relevant information to HMRC prior to the agreement and therefore asked the High Court to annul the agreement. In December 2020 the High Court decided in favour of HMRC GE Capital then filed an appeal with the Court of Appeal. Judgement of the Court of Appeal The Court of Appeal allowed the appeal and set aside the decision of the High Court and thus the assessment af the HMRC. HMRC-v-GE CAPITAL 2021 ... Read more

UK vs GE Capital, December 2020, High Court, Case No [2020] EWHC 1716

UK vs GE Capital, December 2020, High Court, Case No [2020] EWHC 1716
In 2005 an agreement was entered between the UK tax authority and GE Capital, whereby GE Capital was able to obtain significant tax benefits by routing billions of dollars through Australia, the UK and the US. HMRC later claimed, that GE Capital had failed to disclose all relevant information to HMRC prior to the agreement and therefore asked the High Court to annul the agreement. The High Court ruled that HMRC could pursue the claim against GE in July 2020. Judgement of the High Court The High Court ruled in favour of the tax authorities. UK vs GE 2021 COA 1716 ... Read more

UK vs Blackrock, November 2020, First-tier Tribunal, Case No TC07920

UK vs Blackrock, November 2020, First-tier Tribunal, Case No TC07920
In 2009 the BlackRock Group acquired Barclays Global Investors for a total sum of $13,5bn . The price was paid in part by shares ($6.9bn) and in part by cash ($6.6bn). The cash payment was paid by BlackRock Holdco 5 LLC – a US Delaware Company tax resident in the UK – but funded by the parent company by issuing $4bn loan notes to the LLC. In the years following the acquisition Blackrock Holdco 5 LLC claimed tax deductions in the UK for interest payments on the intra-group loans. Following an audit in the UK the tax authorities disallowed the interest deductions. The tax authorities held that the transaction would not have happened between independent parties. They also found that the loans were entered into for an unallowable tax avoidance purpose. A UK taxpayer can be denied a deduction for interest where a loan has ... Read more

UK vs Total E&P North Sea UK Ltd, October 2020, Court of Appeal, Case No A3/2019/1656

UK vs Total E&P North Sea UK Ltd, October 2020, Court of Appeal, Case No A3/2019/1656
Companies carrying on “oil-related activities” are subject to both corporation tax and a “supplementary charge”. “Oil-related activities” are treated as a separate trade and the income from them represents “ring fence profits” on which corporation tax is charged. The “supplementary charge” is levied on “adjusted” ring fence profits, in calculating which financing costs are left out of account. Between 2006 and 2011, the supplementary charge amounted to 20% of adjusted ring fence profits. On 23 March 2011, however, it was announced that the supplementary charge would be increased to 32% from midnight. The change in rate was subsequently carried into effect by section 7 of the Finance Act 2011, which received the royal assent on 19 July 2011. Total E&P, previously Maersk Oil North Sea UK Limited and Maersk Oil UK Limited, carried on “oil-related activities” and so were subject to the supplementary charge. The ... Read more

UK vs Irish Bank Resolution Corporation Limited and Irish Nationwide Building Society, August 2020, Court of Appeal , Case No [2020] EWCA Civ 1128

UK vs Irish Bank Resolution Corporation Limited and Irish Nationwide Building Society, August 2020, Court of Appeal , Case No [2020] EWCA Civ 1128
This case concerned deductibility of notional interest paid in 2003-7 by two permanent establishments in the UK to their Irish HQs. The loans – and thus interest expenses – had been allocated to the PEs as if they were separate entities. The UK tax authorities held that interest deductibility was restricted by UK tax law, which prescribed that PE’s has such equity and loan capital as it could reasonably be expected to have as a separate entity. The UK taxpayers, refered to  Article 8 of the UK-Ireland tax treaty. Article 8 applied the “distinct and separate enterprise” principle found in Article 7 of the 1963 OECD Model Tax Convention, which used the language used in section 11AA(2). Yet nothing was said in the treaty about assumed levels of equity and debt funding for the PE. In 2017, the First-tier Tribunal found in favour of the ... Read more

UK vs GE Capital, July 2020, High Court, Case No RL-2018-000005

UK vs GE Capital, July 2020, High Court, Case No RL-2018-000005
GE Capital (GE) have been routing financial transactions (AUS $ 5 billion) related to GE companies in Australia via the UK in order to gain a tax advantage – by “triple dipping” in regards to interest deductions, thus saving billions of dollars in tax in Australia, the UK and the US. Before entering into these transactions, GE obtained clearance from HMRC that UK tax rules were met, in particular new “Anti-Arbitrage Rules” introduced in the UK in 2005, specifically designed to prevent tax avoidance through the exploitation of the tax treatment of ‘hybrid’ entities in different jurisdictions. The clearance was granted by the tax authorities in 2005 based on the understanding that the funds would be used to invest in businesses operating in Australia. In total, GE’s clearance application concerned 107 cross-border loans amounting to debt financing of approximately £21.2 billion. The Australian Transaction was ... Read more

UK vs Bluecrest Capital Management, July 2020, First-Tier Tribunal – Tax Chamber, Case No TC07782

UK vs Bluecrest Capital Management, July 2020, First-Tier Tribunal - Tax Chamber, Case No TC07782
In the case of BlueCrest Capital Management Cayman Limited (& others), the key issues involved partnership profit/loss allocations for mixed member partnerships and the associated anti-avoidance legislation – limitation on tax relief for interest on unallowable purpose loans and the sale of occupational income provisions. Judgement The Tribunal found that the sale of occupational income rules could apply to charge Income tax on partnership capital contributions. Although the arrangements  did have a commercial purpose (retention and incentivization of partners), they also had as a main object the avoidance or reduction of liability to pay income tax. The test for application of the occupational income rules was therefore met. UK-vs-Bluecrest-Capital-Management-TC07782-1 ... Read more

UK vs Union Castle Ltd, April 2020, UK Court of Appeal, Case No A3/2018/3003 and 3004

UK vs Union Castle Ltd, April 2020, UK Court of Appeal, Case No A3/2018/3003 and 3004
Union Castle Ltd. claimed a tax deduction of £ 39 million related to losses on derivative contracts. After acquiring derivative contracts, Union Castle issued bonus A shares to it’s parent company, Caledonia, which carried a dividend equal to 95% of the cash-flows arising on the close-out of the contracts. Therefore Union Castle had written off 39 million of the value of the contracts in it’s accounts. The tax authorities disagreed that a tax loss had been suffered and issued an assessment disallowing the loss. The Tribunal found in favor of the tax authorities. Capital transactions are subject of the UK transfer pricing rules. Issuing of shares meets the requirements of “making or imposing conditions in commercial and financial relations” as required by Article 9 of the OECD Model Convention. OECD TPG apply to debt financing. Share transactions, which have an effect on income taxation, must ... Read more

UK vs Smith & Nephew, March 2020, Court of Appeal, Case No A3/2019/0521

UK vs Smith & Nephew, March 2020, Court of Appeal, Case No A3/2019/0521
In the case of HMRC v Smith & Nephew Overseas Ltd, consideration was given to the “fairly represent” requirement in the loan relationship code. The dispute concerns each of the Smith & Nephew’s entitlement to set off foreign exchange losses against their liability to corporation tax. The exchanges loss arose as a result of Smith & Nephews changing their functional accounting currencies from sterling to US dollars on 23 December 2008 at a time when the only asset on their balance sheets was a very substantial inter-company debt owed to them by their parent company. The debts were denominated in sterling but then had to be converted into dollars when the companies’ accounts were restated in dollars. The next day, the debts were disposed of as part of a group restructuring. The exchange losses arose from Smith & Nephew’s ‘loan relationships’ as that term is ... Read more

UK vs Irish Bank Resolution Corporation Limited and Irish Nationwide Building Society, October 2019, UK Upper Tribunal, UKUT 0277 (TCC)

UK vs Irish Bank Resolution Corporation Limited and Irish Nationwide Building Society, October 2019, UK Upper Tribunal, UKUT 0277 (TCC)
This case concerned deductibility of notional interest paid in 2003-7 by two permanent establishments in the UK to their Irish HQs. The loans – and thus interest expenses – had been allocated to the PEs as if they were separate entities. The UK tax authorities held that interest deductibility was restricted by UK tax law, which prescribed that PE’s has such equity and loan capital as it could reasonably be expected to have as a separate entity. The UK taxpayers, refered to  Article 8 of the UK-Ireland tax treaty. Article 8 applied the “distinct and separate enterprise” principle found in Article 7 of the 1963 OECD Model Tax Convention, which used the language used in section 11AA(2). Yet nothing was said in the treaty about assumed levels of equity and debt funding for the PE. In 2017, the First-tier Tribunal found in favour of the ... Read more

UK vs Oxford Instruments Ltd, April 2019, First-tier Tribunal, Case No. [2019] UKFTT 254 (TC)

UK vs Oxford Instruments Ltd, April 2019, First-tier Tribunal, Case No. [2019] UKFTT 254 (TC)
At issue in this case was UK loan relationship rules – whether a note issued as part of a structure for refinancing the US sub-group without generating net taxable interest income in the UK had an unallowable purpose and the extent of deductions referable to the unallowable purpose considered. The Court ruled in favor of the tax administration: “Did the $140m Promissory Note secure a tax advantage? 110.     In my view, the $140m Promissory Note secured a tax advantage for OIOH 2008 Ltd in that all of the interest arising in respect of the note (apart from 25% of the interest on $94m of the principal amount of the note) was set off against the taxable income of OIOH 2008 Ltd.  Those interest deductions were accordingly a “relief from tax” falling within Section 1139(2)(a) of the CTA 2010. 111.     I consider that that would be the case ... Read more

UK vs GDF Suez Teesside, October 2018, UK Court of Appeal, Case No [2018] EWCA Civ 2075

UK vs GDF Suez Teesside, October 2018, UK Court of Appeal, Case No [2018] EWCA Civ 2075
Following the collapse of Enron in 2001, Goldman Sachs and Cargill had purchased a company previously known as Teeside Power Ltd. Teesside Power had claimed hundreds of millions of pounds were owed to the plant by other Enron subsidiaries. In a scheem devised by Ernst and Young, Teesside Power set up a Jersey-based company to avoid paying corporation tax on about £200 million by converting the receivables into shares. The Court of Appeal ruled in favour of the tax authorities and considered the scheme abusive tax avoidance covered by UK GAARs. The Court stated that statutory notes, although they are not endorsed by Parliament, are admissible as an aid to construction. The explanatory notes relating to the 2006 amendment to FA 1996 s 85A(1) confirmed that the amendment aimed to make it absolutely clear that the ‘fairly represent’ rule in s 84(1) takes priority over ... Read more

UK vs Union Castle Ltd, October 2018, UK Upper Tribunal, Case No 0316 (TCC)

UK vs Union Castle Ltd, October 2018, UK Upper Tribunal, Case No 0316 (TCC)
Union Castle Ltd. claimed a tax deduction of £ 39 million related to losses on derivative contracts. After acquiring derivative contracts, Union Castle issued bonus A shares to it’s parent company, Caledonia, which carried a dividend equal to 95% of the cash-flows arising on the close-out of the contracts. Therefore Union Castle had written off 39 million of the value of the contracts in it’s accounts. The tax authorities disagreed that a tax loss had been suffered and issued an assessment disallowing the loss. The Tribunal found in favor of the tax authorities. Capital transactions are subject of the UK transfer pricing rules. Issuing of shares meets the requirements of “making or imposing conditions in commercial and financial relations” as required by Article 9 of the OECD Model Convention. OECD TPG apply to debt financing. Share transactions, which have an effect on income taxation, must ... Read more

UK vs CJ Wildbird Foods Limited, June 2018, First-tier Tribunal, case no. UKFTT0341 (TC06556)

UK vs CJ Wildbird Foods Limited, June 2018, First-tier Tribunal, case no. UKFTT0341 (TC06556)
In the transfer pricing case of C J Wildbird Foods Limited the issue was whether a related party loan should be treated as such for tax purposes. There was a loan agreement between the parties and the agreement specified that there was an obligation to repay the loan and interest. However, no interest had actually been paid and a tax deduction had also been claimed by the tax payer on the basis that the debt was unlikely to be repaid. The tax authorities argued that the loan did not have the characteristics of a loan. The borrower was loss making  and did not have the financial capacity to pay any interest. The tribunal found that there was a legal obligation to repay the loan and interest. Whether the loan or interest was actually repaid was irrelevant. “The modern business world has many famous examples of ... Read more

UK vs. BNP PARIBAS, September 2017, FIRST-TIER TRIBUNAL TAX CHAMBER, TC05941

UK vs. BNP PARIBAS, September 2017, FIRST-TIER TRIBUNAL TAX CHAMBER, TC05941
The issues in this case was: Whether the price of purchase of right to dividends were deductible. Whether the purchase and sale of right to dividends was trading transaction in course of Appellant’s trade. Whether the purchase price expenditure incurred wholly and exclusively for purposes of the trade. Whether HMRC were permitted to argue point in relation to section 730 ICTA that was not raised in closure notice and which they stated they were not pursuing Whether the price of sale of right to dividends should be disregarded for the purposes of calculating Appellant’s trading profits under section 730(3) ICTA BNP-vs-HMRC ... Read more

UK vs. Ladbroke Group, February 2017, case nr. UT/2016/0012 & 0013

UK vs. Ladbroke Group, February 2017, case nr. UT/2016/0012 & 0013
Tax avoidance scheme. Use of total return swap over shares in subsidiary to create a deemed creditor relationship. Value of shares depressed by novating liability for large loans to subsidiary. The scheme used by Ladbroke UK involved a total return swap and a novation of loans to extract reserves. Used to achieve a “synthetic transfer” of the JBB business to LB&G. In essence, this involved extracting the surplus which had accumulated in LGI and transferring it to LB&G prior to an actual sale of the JBB business to LB&G. The normal way to extract such reserves would be by a dividend payment. The Court ruled, that it is sufficient for the application of paragraph 13 (UK GAAR) that the relevant person has an unallowable purpose. Where the unallowable purpose is to secure a tax advantage for another person, HMRC do not have to show that the other ... Read more

UK vs UBS AG, March 2016, Supreme Court, Case No [2016] UKSC 13

UK vs UBS AG, March 2016, Supreme Court, Case No [2016] UKSC 13
In this case the UK Supreme Court addressed the Ramsay approach, when it considered tax avoidance schemes which involved composite transactions designed to avoid payment of income tax on bankers’ bonuses. According to the Supreme Court the Ramsay case did not develop a special rule for tax avoidance schemes; instead it extended to tax cases the purposive approach to statutory construction which was orthodox in other areas of the law. The Ramsay principle established that the analysis of the facts depended upon the purposive construction of the statute. While this was not a new special rule for tax avoidance cases, the approach had proved particularly important in such cases. Excerpts from the Supreme Court Judgement “The Ramsay approach 61. As the House of Lords explained in Barclays Mercantile Business Finance Ltd v Mawson, in a single opinion of the Appellate Committee delivered by Lord Nicholls, ... Read more

UK vs. DSG Retail (Dixon case), Tax Tribunal, Case No. UKFT 31

This case concerns the sale of extended warranties to third-party customers of Dixons, a large retail chain in the UK selling white goods and home electrical products. The DSG group captive (re)insurer in the Isle of Man (DISL) insured these extended warranties for DSG’s UK customers. Until 1997 this was structured via a third-party insurer (Cornhill) that reinsured 95% on to DISL. From 1997 onwards the warranties were offered as service contracts that were 100% insured by DISL. The dispute concerned the level of sales commissions and profit commissions received by DSG. The Tax Tribunal rejected the taxpayer’s contentions that the transfer pricing legislation did not apply to the particular series of transactions (under ICTA 88 Section 770 and Schedule 28AA) – essentially the phrases ‘facility’ (Section 770) and ‘provision’ (Schedule 28AA) were interpreted broadly so that there was something to price between DSG and ... Read more

UK vs. W. T. Ramsay Limited, March 1981, HOUSE OF LORDS, Case No. HL/PO/JU/18/241

UK vs. W. T. Ramsay Limited, March 1981, HOUSE OF LORDS, Case No. HL/PO/JU/18/241
In the case of Ramsay a substance over form-doctrine was endorsed by the House of Lords (predecessor of the “UK Supreme Court” established in 2009). The “Ramsay principle” has since been applied in other cases involving tax avoidance schemes in the UK, where transactions have been constructed purely for tax purposes. Statutes referring to “commercial” concepts have also been applied in tax cases where transactions have lacked economic substance. UK vs RAMSAY LIMITED 1981 ... Read more

UK vs. Duke of Westminster, May 1935, HOUSE OF LORDS, Case No. 19 TC 490, [1935] UKHL TC_19_490

UK vs. Duke of Westminster, May 1935, HOUSE OF LORDS, Case No. 19 TC 490, [1935] UKHL TC_19_490
The Duke of Westminster’s gardener was paid weekly, but to reduce tax, his solicitors drew up a deed in which it was said that the earnings were not really wages, but were an annual payment payable by weekly instalments. The tax authorities held that for tax purposes the true relationship and the true nature of these payments were decisive – substance over form. Judgment of the House of Lords The House of Lords decided in favor of the Duke of Westminster and set aside the assessment. LORD TOMLIN. “… Apart, however, from the question of contract with which I have dealt, it is said that in revenue cases there is a doctrine that the Court may ignore the legal position and regard what is called “the substance of the matter,” and that here the substance of the matter is that the annuitant was serving the ... Read more