The taxpayer acquired the entire share capital of its sister company, Syngenta Ltd (SL) from its parent company, Syngenta Alpha BV (SABV) for consideration of shares and cash. The cash element was funded by a loan from a Dutch company.
The taxpayer treated the interest on the loan as giving rise to deductible debits for corporation tax. After an enquiry, HMRC said the loan had an unallowable purpose (CTA 2009, s 442) and therefore the taxpayer was not entitled to a deduction for interest. The taxpayer claimed the main reason for entering into the loan was to obtain the funds necessary to acquire SL on the basis that it would be a good investment.
The taxpayer appealed.
The First-tier Tribunal found that the evidence showed the group implemented the arrangements to mitigate tax. The debits were not a ‘mere benefit, but were the reason why the transaction was entered into’. It was clear that from its inception, the project was concerned with the ‘creation of debt in the UK, rather than entity simplification or dividend planning’.
The tribunal said the directors of the taxpayer were willing to help the group secure the tax benefit, as long as it was not a bad investment.
On the purpose of the directors in entering into the loan, the tribunal found that the acquisition of SL and the loan were offered to them as a ‘package’; they did not enter into the loan to buy a good investment, but to play their part in the wider arrangements. They were keen to avoid a bad investment, but that was not their purpose.
The tribunal concluded that tax avoidance was the main purpose of the loan. Therefore, all of the debits must be disallowed under CTA 2009, s 441.
The taxpayer’s appeal was dismissed.