In Syngenta Holdings Limited (SHL) v HMRC [2024] TC0934, the First Tier Tribunal (FTT) ruled that SHL's decision to enter into a loan was driven by the wider group strategy to obtain a tax advantage. The main purpose of securing this tax advantage rendered the loan to have an unallowable purpose.
Syngenta Holdings Limited (SHL) acquired the entire issued share capital of Syngenta Limited (SL) from its parent company.
- SHL partially funded the purchase with a loan from a groupcompany. It paid interest on the loan and claimed a deduction (Non-Trading Loan Relationship (NTLR) debits), which were surrendered to other companies in the UK group via Group Relief.
- HMRC issued Closure notices disallowing the deduction on the basis that the main purpose of the loan was unallowable.
- SHL Appealed to the First Tier Tribunal (FTT).
The FTT found that the sole purpose of the loan (and transaction) was to save tax by obtaining the NTLR debits via interest payments on the loan.
- There was a lack of reliable contemporary documentation to support the view that SL was a 'good investment' and the valuation report suggested concerns over its growth prospects.
- The only purpose of entering into the loan (and transaction) was to secure the interest deduction.
- The briefing slides show the willingness of SHL to play its part in assisting the group to secure the tax benefit. None of the slides were about SHL making a 'good investment'.
- SHL's directors were keen to avoid a bad investment: where either SHL could not pay interest or could not refinance the loan at the end of the term, but that was not the purpose. The easiest way to avoid a bad investment would be not to enter into the transaction.
- The purpose of entering into the loan was to assist the 'group purpose' of achieving a tax advantage by obtaining NTLR debits through making interest payments on it. That was the only and main purpose.
- The purpose was to secure a tax advantage and was not a business or other commercial purpose. It was an unallowable purpose and the debits must be disallowed.
- A company cannot claim a deduction for interest payable on a Loan relationship if the loan has an unallowable purpose and an unallowable purpose is a company being party to the loan relationship that is not for business or commercial motives, for example, tax avoidance.
The FTT dismissed the appeal.
Useful guides on this topic
Loan Relationships
How are loans made to and by a company taxed? What are the rules when loans are written down? What is the difference between a trading and non-trading loan relationship? What are the rules for connected party loans?
Loan relationships toolkit: Is a balance within the rules?
When does a balance fall within the loan relationship rules?
Closure notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?
How to appeal an HMRC decision
Disagree with an HMRC decision? How do you appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?
Losses: Trading and other losses
When can a company offset its losses? What restrictions are there? How are loss claims made?
Groups
What qualifies as a group for tax? How do you form a group? Which definition of a group applies for different types of tax? What are the benefits of being in a group?
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