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Intra-group loan had an unallowable purpose

By Mark McLaughlin, October 2023

The First-tier Tribunal was correct to hold that an intra-group loan had an unallowable purpose for loan relationships purposes.

The appellant UK company (JTI) was part of a multinational group (JG), which was headquartered in the US. In 2011, JG acquired another US-headed group for $1.1bn using JTI (a newly incorporated company) as the acquisition vehicle. The acquisition was partly funded by an intra-group $550m borrowing by JTI on which it paid arm’s length interest. The appellant sought to apply debits in respect of that loan interest, but HM Revenue and Customs (HMRC) denied them on the basis that the loan relationships ‘unallowable purpose’ rules (in CTA 2009, ss 441 and 442) applied. JTI appealed. 

The First-tier Tribunal (FTT) agreed with HMRC that the unallowable purpose rules applied and that all the loan relationship debits in respect of the interest paid should be denied. JTI appealed to the Upper Tribunal (UT),

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