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The Upper Tribunal (“UT”) has handed down its decision in the Blackrock appeal (Blackrock Holdco 5 LLC v HMRC [2022] UKUT 00199 (TCC) ). This decision, which creates legal precedent, has important implications for the deductibility of interest by companies under both the “Unallowable Purpose Rule” and the transfer pricing (“TP”) rules.

Key takeaways on Unallowable Purpose

This is the latest in a recent flurry of Tribunal decisions concerning the “Unallowable Purpose Rule” (CTA 2009, ss441-442). This rule applies to disallow deductions arising from company loan relationships with unallowable purposes. The decision represents a victory for HMRC against this particular taxpayer, with the decision of the First-tier Tribunal (“FtT”) being set aside and re-made. 

The UT concluded from the evidence that the taxpayer entity had a main tax purpose in being party to certain loans borrowed from its US parent (the “Loans”). The UT also concluded from the evidence that absent the tax benefits of the Loans the borrowing would not have occurred, such that interest deductions arising from the Loans would be disallowed.