Tax Journal Article on HMRC v BlackRock

For the September 2022 issue of the Tax Journal, I wrote an article on the Upper Tribunal's decision in HMRC v BlackRock Holdco 5 LLC.

The Upper Tribunal allowed HMRC’s appeal, holding that the First-tier Tribunal had erred in law when it allowed covenants to be taken into account in considering whether an independent lender would have made the loans. In the view of the Upper Tribunal, third party covenants that were not part of the actual transaction could not be considered to be part of the hypothetical arm’s length transaction because to do so would be materially to change the ‘surrounding circumstances and ... economically relevant characteristics of the transactions’. As an independent arm’s length lender would not have lent without covenants from parties in addition to the borrower, no interest deduction was allowed.

The Upper Tribunal’s view that TIOPA 2010 s 147(1)(a) precluded the imputation of covenants from third parties seems an overly restrictive interpretation of the legislation, and it is arguably inconsistent with the OECD’s latest transfer pricing guidelines.