No commercial purpose without tax advantage

In 2009 BlackRock Holdco 5 LLC issued several tranches of loan notes to its parent company as part of the acquisition of Barclays Global Investors. It claimed deductions on the interest paid on the loans. HMRC refused the claims saying the loan debits were attributable to loan relationships that had an unallowable purpose within the meaning of CTA 2009 s 441.

The First-tier Tribunal allowed the company’s appeal. HMRC appealed.

The Upper Tribunal decided the First-tier Tribunal had erred in law in allowing the covenants to be taken into account in considering whether an independent lender would have made the loans. Third-party covenants that were not given as part of the actual transaction could not be considered to be part of the hypothetical transaction because to do so would ‘materially’ change the ‘surrounding circumstances and ... economically relevant characteristics of the transactions’. Having decided that an independent lender...