JTI Acquisition Company (2011) Limited v The Commissioners for HMRC

This appeal concerned whether JTI Acquisition Company (2011) Limited (the appellant) could bring into account corporation tax debits for interest on $550m loan notes it issued, or whether those debits were disallowable because the appellant was party to the loan relationship for an "unallowable purpose" within the meaning of sections 441 and 442 of the Corporation Tax Act 2009. The First-tier Tribunal found, and the Upper Tribunal upheld, that the appellant’s directors participated in a group scheme devised to secure a United Kingdom tax advantage and therefore the appellant had a main tax avoidance purpose in being a party to the loan relationship.

The Court of Appeal rejected the appellant’s challenge. Applying the statutory purpose test in sections 441–442 CTA 2009 and recent authorities (including BlackRock and Fidex), the court held that the facts (including formation and role of the appellant, contemporaneous communications and the directors’ knowledge and conduct) supported the finding that the appellant agreed to play the role devised by the parent group to generate loan relationship debits for the United Kingdom group. The subjective intentions of the appellant’s directing minds, informed by the wider context, established a main tax avoidance purpose. As the debits would not have arisen but for that scheme, they were wholly attributable to the unallowable purpose and therefore disallowed (no apportionment required).

The appellant, a United Kingdom incorporated subsidiary formed in June 2011, issued $550m interest-bearing loan notes as part of a nine-step acquisition structure by the Joy Global group to fund the purchase of LeTourneau Technologies Inc (LTT). The appellant claimed interest debits on those loan notes and surrendered non-trading deficits to other UK group members. HMRC challenged those debits under the unallowable purpose rules in sections 441 and 442 CTA 2009.

Nature of the claim: The appeal sought to overturn the FTT and UT findings that the appellant had an unallowable purpose, thereby permitting the appellant to bring interest debits into account for corporation tax. The procedural history ran FTT [2022] UKFTT 166 (TC) → UT [2023] UKUT 00194 (TCC) → Court of Appeal [2024] EWCA Civ 652.

Issues framed:

• Whether the appellant was party to the loan relationship for an "unallowable purpose" under sections 441–442 CTA 2009;
• Whether the appellant had a bona fide commercial purpose (funding the acquisition) that excluded a tax avoidance main purpose;
• Whether any debit should be apportioned or wholly disallowed.

Court’s reasoning: The Court of Appeal emphasised the statutory focus on the subjective purposes of the company’s directing minds (the board) but confirmed that the wider factual context and the purposes of the wider scheme may inform that inquiry. The tribunal findings that the appellant’s board was aware of, and agreed to play, the role devised by the parent group to secure a UK tax advantage were open to the FTT and UT and supported the conclusion that the appellant had a main tax avoidance purpose. On this basis and applying Fidex and BlackRock, the Court concluded the interest debits were wholly attributable to the unallowable purpose and thus disallowed; a just and reasonable apportionment was unnecessary.

Subsidiary findings: The tribunals rejected the appellant’s account of genuine, independent UK-level decision-making and were entitled to evaluate witness evidence (notably Mr Olsen) as unconvincing on commercial purposes. The court declined to disturb those findings.

The appeal is dismissed. The Court of Appeal held that, on the facts found by the FTT (upheld by the UT), the appellant’s directing minds went along with a group scheme they knew was designed to secure a UK tax advantage; that constituted a main tax avoidance purpose within sections 441–442 CTA 2009; and the interest debits were wholly attributable to that unallowable purpose, so they must be disallowed (no apportionment was required).

First-tier Tribunal decision: [2022] UKFTT 166 (TC); appealed to Upper Tribunal (Tax and Chancery Chamber): [2023] UKUT 00194 (TCC); further appeal to the Court of Appeal: [2024] EWCA Civ 652 (this judgment).