Swiss Centre Limited v The Commissioners for HMRC

A corporation tax debit under the Corporation Tax Act 2009 requires a sufficient causal connection between the loss and a loan relationship or related transaction. Expenses must be incurred directly under or for the purposes of those relationships or transactions. A payment made for several inseparable commercial purposes does not qualify merely because a secured asset or loan relationship provided leverage. Nor does a payment connected with a guarantee itself establish a loan relationship: any resulting debt must arise from a transaction for the lending of money and represent a loss. An otherwise qualifying debit may also be restricted by the unallowable purpose rules. The Upper Tribunal dismissed the appeal because the disputed payments served wider group debt and restructuring purposes and did not meet those requirements.

Swiss Centre Limited (SCL) appealed the First-tier Tribunal’s decision, [2023] UKFTT 449 (TC), which denied deductions for approximately £33.5 million paid to the National Asset Management Agency (NAMA) from the proceeds of selling the Swiss Centre. The disputed amount comprised an Additional Sum connected with debts of other companies in the wider MAR Connection and €11.5 million associated with a guarantee SCL had given for Lavangna’s borrowing. The First-tier Tribunal found that the payments served wider group purposes and were not deductible expenses or losses arising from SCL’s loan relationships. SCL challenged the Tribunal’s factual findings, its reasons and its conclusions on loan relationship debits. The central questions were whether either payment gave rise to a deductible debit under the loan relationship rules and whether the Additional Sum was sufficiently connected to the release of security over the Swiss Centre.

1. Appeal dismissed. The First-tier Tribunal’s decision remained in force.
2. On grounds 1 and 2, the Upper Tribunal applied the established limits on appellate review of factual findings. An appellate tribunal cannot substitute its own view of the evidence simply because it might have reached a different conclusion; intervention requires a finding that the Tribunal was not entitled to make or a conclusion that was rationally insupportable. The Tribunal had considered the evidence as a whole, including the witness accounts, contemporaneous documents and the negotiation history. Its reasons enabled the parties and the appellate court to understand how it resolved the principal issues. The court relied on AH (Sudan) v SSHD [2007] UKHL 49, Fage UK Ltd v Chobani UK Ltd [2014] EWCA Civ 5, Volpi v Volpi [2022] EWCA Civ 464 and English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605.
3. On ground 3, the First-tier Tribunal had understood the substance of the NAMA Deed. The payments reduced the indebtedness of other MAR Connection entities and facilitated transfers of development properties and wider restructuring. They were not costs incurred to sell SCL’s single asset. The fact that the Lavangna Guarantee was not formally called did not make the associated payment an expense properly attributable to SCL.
4. On ground 4, section 307 of the Corporation Tax Act 2009 required a sufficient causal connection between a loss and the loan relationship or related transaction. Where multiple inseparable causes existed, the loss could not be said to arise from one qualifying transaction alone. The Additional Sum had been under negotiation months before the DS1 issue arose and served wider purposes, including settling group debt and preserving development assets. NAMA’s security provided leverage, but that did not make the payment arise from release of the charge or an expense incurred directly for SCL’s loan relationship. The First-tier Tribunal was entitled to deny the debit, consistently with Union Castle Mail Steamship Co Ltd v HMRC [2020] EWCA Civ 547.
5. On ground 5, the Lavangna Sum did not give rise to a loan relationship between SCL and Lavangna. The payment obligation arose under the facility arrangements and NAMA Deed, and the guarantee was not called. Even if SCL acquired rights against Lavangna, those rights were worthless and did not result in a deductible loan relationship loss. As an alternative ground, any otherwise qualifying debit would have been disallowed under sections 441 and 442 of the Corporation Tax Act 2009: SCL had not shown that the payment was among its business or commercial purposes.
6. Any costs application had to be made and served within one month under rule 10(5)(a) and (6) of the Tribunal Procedure (Upper Tribunal) Rules 2008.

1. Upper Tribunal (Tax and Chancery Chamber): SCL’s appeal was dismissed, leaving the First-tier Tribunal’s decision in force.
2. First-tier Tribunal (Tax Chamber): The Tribunal rejected SCL’s claim for deductions in its decision, [2023] UKFTT 449 (TC), released on 22 May 2023.