In Syngenta Holding Limited v HMRC [2024] UKFTT 998 (TC) (“Syngenta”), the UK’s First-tier Tribunal (“FTT”) denied a deduction for interest on an intra-group loan on the basis that the loan had an unallowable purpose for the purposes of section 411 of the Corporation Tax Act 2009 (“CTA 2009”). The decision in Syngenta comes on the back of a number of recent UK cases which have considered the “unallowable purpose” rules for the purposes of the loan relationship rules at Parts 5 and 6 CTA 2009. We have considered the case law development in this area in previous editions of Brass Tax (see: here, here, here and here).
Background
The Syngenta group is a global agricultural business operating in the crop protection and seeds markets. In the relevant transaction, Syngenta Holdings Limited (“SHL”) acquired the entire issued share capital of its sister company, Syngenta Limited (“SL”) from Syngenta Alpha BV (“SABV”). SHL obtained an intra-group loan (the “Loan”) from the Syngenta group treasury company, Syngenta Treasury NV (“STNV”). The consideration for the acquisition of the SL shares by SHL comprised: (a) cash, funded by way of the Loan; and (b) the issue and allotment of B ordinary shares in the capital of SHL to SABV. SABV subsequently made an interim distribution in an amount equal to the amount of the Loan to its parent.
The Evidence
In reaching its decision, the FTT considered various internal and external correspondence together with presentations and reports. The transaction was described in an internal email as a “tax project” and a “debt push down” project. The FTT placed heavy reliance on internal emails which described the tax advantages that would be obtained from undertaking the transaction. Specifically, in considering the internal correspondence relating to the transaction, the FTT noted that the stated “benefits” of the transaction were solely stated to be tax benefits, which were stated in a way that the FTT interpreted as being significant objectives.
In addition, the FTT approached much of the correspondence between the group’s tax advisors and the Syngenta tax group with “caution”. For example, the FTT noted that emails described the commercial issues driving the proposal as being the “simplification of the UK companies so all are held under one holding company”. However, the FTT went on to consider that the parties understood that what was being asked was “what can be said to be the commercial justification for the Transaction, for the purpose of the unallowable purpose test”.
The FTT’s Decision
In its findings, the FTT concluded that when the evidence was viewed “in the round”, that legal entity simplification was used as a “cover” to minimise the perception that the transaction was entered into for tax purposes and concluded that SHL had a main purpose of obtaining a tax advantage, whilst key documentation omitted any reference to the other purported commercial benefit of dividend planning.
In its judgment, the FTT referred to the Court of Appeal decision in Kwik-Fit Group Ltd & ors v HMRC [2024] EWCA Civ 434, where it was observed that it is for the [fact finding tribunal] to “reach its own decision on whether there was an unallowable purpose based on all the evidence before it”.
Whilst some evidence before the FTT in Syngenta suggested the transaction had a purpose other than that of obtaining a tax advantage, much of this evidence was treated with caution and given little weight by the FTT, where it was perceived to be evidence that was created with the directors and the group’s advisors being focused on “constructing an evidential base that supports the argument that the transaction has a commercial purpose”. Accordingly, Syngenta serves as a salient reminder to both taxpayers and tax advisors of the importance of loan relationship transactions having a genuine commercial purpose (and not a tax advantage purpose) and such purpose being genuinely documented in both internal and external communication and documentation.
