Tax advantage was the main purpose of loan relationship

The taxpayer was a UK company that was a member of a group whose ultimate parent was in the US. Broadly it was set up to be a holding company into which it received funds including $500m in loan notes. The taxpayer applied to HMRC for an advance thin capitalisation agreement which HMRC granted.

HMRC later said that the taxpayer was a party to the loan notes for an unallowable purpose (CTA 2009 s 441). This was to secure a tax advantage by surrendering debits by way of group relief.

The First-tier Tribunal agreed that there was a UK tax advantage to the taxpayer by being a party to the loan relationship in the form of the group relief which would be available. Further the decision makers were at the group level and their object in implementing the series of transactions was to bring into existence...