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Expansive approach
Key points
- JTI UK was set up to acquire another US business in a commercial acquisition.
- The aim was to use intra-group interest to obtain corporation tax relief.
- The Upper Tribunal agreed with HMRC that there was an unallowable purpose.
- Evidence showed that JTI UK did not have the freedom to choose whether to proceed with the transaction.
- Upcoming appeals such as BlackRock Holdco 5 may provide further guidance.
The Upper Tribunal (UT) has given further guidance on the proper interpretation of the UK’s rule that prevents deduction of interest for tax purposes where a loan is entered into for an ‘unallowable purpose’ in JTI Acquisitions Company (2011) Ltd v CRC [2023] STC 1459.
The unallowable purpose rule sits within the UK’s loan relationship regime (CTA 2009 s 441 and s 442). Under this targeted anti-avoidance rule a company may not bring into account any debits (being...
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