Corporation tax

FTT dismisses taxpayer’s appeal on loan relationships ‘unallowable purpose’ rule

The First-tier Tribunal (FTT) has dismissed a taxpayer’s appeal in the corporation tax case of Syngenta Holdings Limited v HMRC concerning the loan relationships unallowable purpose rule (s441 and 442, Corporation Tax Act 2009). 

The taxpayer, a UK-resident group company, claimed tax deductions between 2011 and 2016 for interest expense arising on a new intra-group loan from an overseas group treasury company. The loan had partly funded an intra-group acquisition in 2011 under which the taxpayer acquired 100% of the shares in another UK company from its non-UK parent company. HMRC considered that the main purpose the taxpayer was a party to the loan for was an unallowable purpose, ie, the obtaining of the UK tax deductions for the interest. 

After reviewing the evidence in detail, including documentary evidence from the time the transaction was implemented, and applying recent case law on the unallowable purpose rule, the FTT made a finding of fact that the only reason the loan was entered into was to secure the tax advantage. Accordingly, the FTT agreed with HMRC that all the interest debits were disallowed under the rule.

Syngenta Holdings Limited v HMRC [2024] UKFTT 998 (TC)

From the Business Tax Briefing dated 8 November 2024, published by Deloitte

LLP and corporate members related for amortisation rules

The Upper Tribunal (UT) has upheld the First-tier Tribunal (FTT) decision that a Limited Liability Partnership (LLP) is related to its corporate members even though it is not a company. As a result, relief for amortisation for assets acquired from those companies was denied.

The case revolved around the deductibility of amortisation for intangible assets acquired by the LLP from its corporate members. The key issue was whether the LLP and its corporate members were considered “related parties”.

Where a partnership has one or more corporate members (as was the case here) its profits are to be computed as if the LLP’s trade was carried on by a company. The LLP argued that this deeming provision only extended to the calculation of profits and did not extend to making assumptions about the ownership structure, too. The related parties rules could not therefore apply to prohibit relief for amortisation. 

The UT upheld the FTT decision, applying a purposive approach stating that they did not believe that Parliament could have intended for the outcome being argued for by the taxpayer. The LLP and its corporate members were related parties and so the amortisation was not deductible.

Muller UK and Ireland Group LLP v HM Revenue & Customs [2024] UKUT 273 (TCC)  

From Tax Update November 2024, published by Evelyn Partners LLP

Partnership taxation

FTT allows taxpayers’ appeal on whether an LLP was ‘carrying on a business’

The First-tier Tribunal (FTT) has allowed the taxpayers’ appeal in the Limited Liability Partnership (LLP) case of GCH Corporation Ltd and others v HMRC. The case considers s59A, Taxation of Chargeable Gains Act 1992, which allows for a UK LLP to be treated as a tax transparent entity for UK chargeable gains purposes but only if it “carries on a trade or business with a view to a profit”. 

HMRC considered that this condition was not satisfied in the taxpayers’ circumstances, with the result that the LLP should have been taxed as a non-transparent/opaque entity, affecting the tax treatment of assets contributed to the LLP by its members. Equivalent LLP tax transparency rules with similarly worded conditions can be found in s1273, Corporation Tax Act 2009 and s863, Income Tax (Trading and Other Income) Act 2005.

The FTT applied case law on the meaning of “carrying on a trade” and “carrying on a business” to the activities of the taxpayer LLP during the relevant period. Its activities, which involved making a return from a small number of investments and dealings in a small number of public company shares over a relatively short period of time, were found by the FTT to be insufficient to be a trade, after applying the standard “badges of trade” analysis approach. However, the FTT considered the activities were sufficient to be a “business carried on with a view to a profit”, and as a result, the LLP qualified to be treated as tax transparent for capital gains tax purposes.

The FTT considered that the LLP was established primarily for the purpose of implementing a tax scheme, relating to asset transfers between the LLP and its members, and how the tax transparency rules ceased to apply to the LLP in a subsequent liquidation. At the Autumn Budget 2024, HMRC published details of a new measure, to take effect from 30 October 2024, to amend the section 59A treatment of assets contributed to an LLP by its members if the assets are subsequently returned during liquidation.

GCH Corporation Ltd & Ors v HMRC [2024] UKFTT 922 (TC)

From the Business Tax Briefing dated 1 November 2024, published by Deloitte

VAT

Penalties for inward diversion fraud

In October 2022, Sintra Global Inc (Global) and Mr Parul Malde were successful in an appeal to the First-tier Tribunal (FTT) against HMRC decisions and assessments relating to the non-payment of VAT and excise duties and related penalties, which HMRC considered to arise from the fraudulent diversion of alcohol into the UK (inward diversion fraud) and its subsequent sale in the UK by Global and Sintra SA (SA). It was HMRC’s case that Global and SA were at all material times controlled by Mr Malde. 

The Upper Tribunal (UT) has delivered its decision in HMRC’s appeal against the FTT decision. The UT concurred with the FTT’s finding that the burden of proof fell on HMRC with respect to the imposition of penalties. The UT also refused to overturn the FTT’s finding that Global did not supply the alcohol; the UT could not say, as argued by HMRC, that the FTT’s conclusion was one that no reasonable tribunal could have reached. Although the UT considered that the FTT erred in law in terms of the order in which it considered the issues raised in the appeal, the UT found that this error was not material to the FTT’s decision.

The UT identified further errors of law in the FTT decision regarding the imposition of a director’s liability notice (DLN), which were material. Accordingly, the UT set aside the FTT decision insofar as it related to this issue. While the UT upheld the FTT decision on a number of grounds of appeal, it remitted the issues regarding the validity and quantum of the assessment of the DLN to the FTT. 

HMRC v Sintra Global, Inc & Anor [2024] UKUT 346 (TCC)

From the Weekly VAT News dated 18 November 2024, published by Deloitte

Zero rating of exported goods

Procurement International Ltd (PIL) was a reward recognition programme fulfiller. It supplied goods to businesses that ran reward recognition programmes (reward programme operators – RPOs) on behalf of their customers which, in turn, wished to reward their customers and/or employees (reward recipients – RR). The RPOs provided a platform through which rewards could be chosen and ordered, and the RPOs would then place orders with PIL for the goods. A shipper (Royal Mail for smaller and UPS for larger and more valuable goods) collected the goods from PIL and shipped them directly to the RR. PIL had zero-rated the supply of goods sent to RRs overseas. HMRC contended that where the RPO was VAT-registered in the UK, PIL was making a supply of goods to the RPO at a time when the goods were situated in the UK, and as such there was a standard-rated supply. 

The First-tier Tribunal has held that these were single composite supplies of delivered goods, and the supplies were zero-rated as supplies of exported goods. PIL sent the goods to a destination outside the UK and was responsible for arranging the transportation. The supplies were not made on terms that the RPOs collected or arranged for collection of the goods in order to remove them from the UK. The FTT found that the RPOs took possession of the goods on delivery to the RR, and not before. PIL’s appeal was allowed. 

Procurement International Limited v HMRC [2024] UKFTT 949 (TC)

From the Weekly VAT News dated 4 November 2024, published by Deloitte