Taxpayer’s reliance on HMRC’s manuals did not create a legitimate expectation

Aozora UK set up Aozora US to which it made loans. The US imposed withholding tax on the interest payments the UK company received on the loans. Aozora UK was also liable to UK corporation tax on the interest. HMRC denied unilateral credit relief under TA 1988 s 790 on the basis that s 793A prevented it. As a result Aozora UK could not offset US withholding tax against UK corporation tax.

Aozora UK said HMRC’s International Manual stated the scope of s 793A was limited to precluding credit relief in one particular circumstance only which it was common ground did not apply to Aozora UK. It argued that this gave rise to a legitimate expectation. The High Court dismissed the taxpayer’s appeal.

Lady Justice Rose delivered the Court of Appeal’s judgment. She did not agree with HMRC that because ‘the ordinarily sophisticated taxpayer knows that...