The Court of Appeal has rejected the taxpayer’s appeal in Fidex v Commissioners for HMRC  EWCA Civ 385. The Court agreed with the Upper Tribunal’s conclusion on two issues: a) that HMRC was entitled to pursue an unallowable purpose challenge not referred to in the closure notice issued to the taxpayer; and b) that the entirety of the debit in dispute was attributable to the taxpayer’s tax avoidance purpose. The taxpayer did not appeal against the fundamental finding of the First-tier Tribunal (upheld by the Upper Tribunal) that a company can (and did in this case) develop a secondary, but still main, purpose for being party to a loan relationship over time (even if the original purpose continues to subsist).
The two issues where the Court agreed with the Upper Tribunal’s conclusion were as follows:
That HMRC was entitled to pursue an unallowable purpose challenge not referred to in the closure notice issued to the taxpayer, broadly on the basis that the ‘conclusion’ contained in the closure notice related to the absence of relief for a disputed loan relationship debit rather than (as contended for the taxpayer) that the accounting treatment had been incorrect (the accounting treatment had, on the contrary, been found to be acceptable by the First-tier Tribunal and this finding was not appealed by HMRC).
That the entirety of the debit in dispute (a transitional adjustment arising on the adoption of IFRS at the start of 2005) was attributable to the taxpayer’s tax avoidance purpose on a just and reasonable apportionment because there would have been no debit but for the arrangement (despite an acceptance that it also had ‘good’ purposes such that it would have been party to that relationship irrespective of the unallowable purpose).
The full text of the decision can be found here.