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An alarming implication of the BlackRock judgment

Intercompany Agreements

5 September 2022

We hope that you found our recent analysis of the BlackRock decision to be thought-provoking and useful. This concluded that while the judgment certainly does have significant implications for groups and their advisers, these are not quite as earth-shattering as they might at first appear. In this blog post we'd like to look at another implication of the judgment – and this is one that we think you’ll find rather alarming, to say the least.

You’ll remember that the case hinged on two issues. The ‘Transfer Pricing Issue’ (would an independent lender acting at arm’s length have made similar loans) and the “Unallowable Purpose Issue’ (did the loans have both a commercial purpose and a tax advantage purpose, and if so would it be reasonable to apportion all the debits to the commercial purpose).

Our earlier analysis looked only at the former, because that’s the one that sits squarely within LCN Legal’s area of expertise. The other is more of a technical tax issue, and we do not advise on tax or transfer pricing. (That’s one reason why TP and tax advisers are keen to involve us in their projects: because we don’t compete with them we focus entirely on supporting them to provide an excellent service for their clients.) However, the way that the Unallowable Purpose Issue was dealt with in court has some implications that are anything but niche.

The Upper Tribunal assessed, and was influenced by, a large number of internal emails between BlackRock staff and their tax advisers. (This is not the first time that something like this has happened – you may recall a similar situation in the Singtel case.) A typical example is this extract, from an email between two senior members of BlackRock’s tax team:

“HMRC will likely view the transaction as being aggressive, which may lead them to: (1) revisit our low risk rating; (2) seek other issues to challenge us on; (3) seek every means possible to challenge the structure itself.”

Email has always been a potentially dangerous medium. It can feel casual and conversational to the sender, leading them to take insufficient account of the fact that it is both permanent and easily shareable. Reading the BlackRock decision doesn't give the impression that the internal emails were anything but considered and professional. However, many advisers would probably feel a distinct chill down their spines at the thought of their emails being read out in court – or potentially published in a judgment.

There’s no need to panic about this. But it’s a great reminder to all of us that emails (and messages sent using other platforms) are not as transitory as we might like to think – and should best be regarded as part of a permanent record. Email is an essential part of modern commercial life, and an exceptionally useful tool. But, like all powerful tools, if used incorrectly it can cause serious damage.


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Article by
Paul Sutton
LCN Legal Co-Founder

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