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Legal 500, 2018

03 November 2020

BlackRock v HMRC; (FTT)

The First-tier Tribunal has allowed the appeal of BlackRock Holdco 5 LLC against amendments made by HMRC denying deductions for interest incurred on US$4 billion of loan notes issued as part of the acquisition of Barclays Global Investors.

The decision addresses important questions on both transfer pricing and unallowable purpose (s.441 CTA 2009):

  1. On transfer pricing, the Tribunal rejected HMRC’s argument that one must consider the position of a corporate group as a whole and ask the question whether the group, if acting at arm’s length, would have structured matters differently. Rather, the Tribunal emphasised the “separate entity approach” and then asked the question of whether BlackRock Holdco 5 LLC would have been able to borrow the sums in question and if so on what terms. Preferring the evidence of BlackRock Holdco 5 LLC, the Tribunal found that it would have been able to borrow at arm’s length in the same amount and on the same terms albeit with the benefit of various covenants from other members of the BlackRock group.
  2. On unallowable purpose, the Tribunal found that there was both a commercial and tax purpose for BlackRock Holdco 5 LLC in issuing the loan notes. However, the Tribunal found that BlackRock Holdco 5 LLC would have issued the loan notes, and therefore incurred the same loan relationship debits, even if there had been no tax advantage and so on a just and reasonable basis it apportioned all loan relationship debits to the commercial purpose (thus allowing full deduction).

Kevin Prosser QC and David Yates QC were instructed by Simmons & Simmons LLP for BlackRock Holdco 5 LLC.

David Ewart QC and Sadiya Choudhury were instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents.

The approved decision can be viewed here.

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