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Muller UK and Ireland Group LLP & Ors v Commissioners for His Majesty's Revenue and Customs
Factual and Procedural Background
Three corporate members (Company A, Company B and Company C), members of a multinational dairy group ("Company Group"), incorporated a limited liability partnership (the LLP) on 7 May 2013. On 1 July 2013 the corporate members transferred their respective trades and certain assets (brands, licences, software and goodwill — collectively "the Material Assets") to the LLP in exchange for membership units. The Material Assets were valued by Company E and recorded at fair value in the LLP accounts; the LLP amortised those assets on a straight-line basis over five years in accordance with GAAP.
The corporate members claimed tax deductions for the amortisation of the Material Assets in computing profits for accounting periods ended 31 December 2013–2018. The Tax Authority opened enquiries, issued closure notices (enquiries closed January 2019) and made amendments that gave rise to appeals by the LLP and the corporate members. The FTT dismissed the appellants' case on the principal issue ([2023] UKFTT 221 (TC), [2023] SFTD 751). The UT dismissed the appeal from the FTT ([2024] UKUT 273 (TCC), [2024] STC 1705). Permission for a second appeal was granted and the present court (Judge Henderson, sitting with Judge Asplin and Judge Lewison) heard the appeal and dismissed it.
Legal Issues Presented
- Whether, for the purposes of section 1259(3)(a) and the consequent notional-company computation of profits, the notional UK resident company must be attributed the ownership and control characteristics of the real-world LLP such that the related‑party test in section 882 of CTA 2009 is engaged.
- Whether the FA 2016 amendments (section 52) to section 882, which extend the related‑party test to include the "participation condition", apply in accounting periods beginning on or after 25 November 2015 even where the assets were originally acquired before that date.
- Whether an obvious drafting error in section 882(5B) (as inserted by section 52 of FA 2016) can be corrected by the court under the Inco Europe principles.
Arguments of the Parties
Appellants' Arguments
- The deeming in section 1259(3) requires only that the LLP's trade be treated as carried on by "a UK resident company" for profit‑computation purposes and does not require importing real‑world ownership/control attributes into the notional company.
- If no ownership/control attributes are attributable to the notional company, the negative gateway in section 882(1)(b) (acquisition from a non‑related party) is satisfied and Part 8 applies, allowing the amortisation debits.
- The FA 2016 amendments do not alter the legal relationship as at the actual date of acquisition (2013) and therefore cannot defeat claims based on later accounting periods; and the drafting error in 882(5B) is not amenable to correction to produce the effect sought by HMRC.
Tax Authority's Arguments
- The notional company posited by section 1259(3) must, for the purposes of applying Part 8 and section 882, be attributed the ownership and control characteristics of the LLP to enable a proper determination whether the notional company was a "related party" of the transferors.
- If no such attribution were made, section 882(1)(b) would always be satisfied and Part 8 would always apply, an outcome inconsistent with the statutory purpose and the anti‑avoidance design of the gateway.
- The FA 2016 amendments apply to accounting periods beginning on or after 25 November 2015 (so the amended definition of related party governs claims in those periods) and the drafting error in 882(5B) can be corrected under Inco Europe principles because Parliament's intention and the requisite conditions for correction are clear.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Fowler v Revenue and Customs Commissioners [2020] UKSC 22, [2020] 1 WLR 2227 | Guidance on the approach to construction of statutory deeming provisions (extent of the fiction; purpose‑driven interpretation; avoid absurd results; follow inevitable corollaries). | Relied on as authoritative guidance for construing section 1259(3); the court applied Fowler's principles to determine the permissible scope of the deeming fiction. |
| DCC Holdings (UK) Ltd v Revenue and Customs Comrs [2011] 1 WLR 44 | Collects earlier dicta on deeming provisions relevant to statutory construction. | Referenced (via Fowler) as part of the doctrinal background on interpreting deeming provisions. |
| Inland Revenue Comrs v Metrolands (Property Finance) Ltd [1981] 1 WLR 637 | Historical authority on statutory interpretation of deeming provisions (cited among collected dicta). | Included in the doctrinal material relied on, via the summary in Fowler/DCC, for limits on deeming. |
| Marshall v Kerr [1995] 1 AC 148 | Authority cited in the collected dicta on deeming. | Part of the precedent material informing the court's approach to the scope of the fiction. |
| Jenks v Dickinson [1997] STC 853 | Authority cited in the collected dicta on deeming. | Part of the precedent material informing the court's approach to the scope of the fiction. |
| East End Dwellings Co Ltd v Finsbury Borough Council [1952] AC 109 | Principle that once a statutory fiction is mandated, the court should follow its inevitable corollaries. | Quoted to support the proposition that the court should not "boggle" at the consequences of the statutory imagination; applied to argue for necessary corollaries of section 1259(3). |
| BCM Cayman LP and another v Revenue and Customs Commissioners [2022] UKUT 198 (TCC), [2022] STC 1586 | Interprets the equivalent deeming provision in section 1259(4) (non‑UK resident company); held only the bare assumption that a non‑UK company carried on the trade was required for certain questions. | Considered by court; held to be of limited assistance and not binding on the present issue but discussed in submissions and reasoning. |
| R (O) v Secretary of State for the Home Department [2022] UKSC 3, [2023] AC 255 | Principles of statutory construction regarding giving effect to clear statutory language. | Invoked by the appellants in support of a literal reading; the court treated the principles as part of the interpretive framework but applied Fowler's deeming guidance. |
| For Women Scotland Ltd v Scottish Ministers [2025] UKSC 16, [2025] 2 WLR 879 | Recent restatement of statutory construction principles (cited for endorsing earlier guidance). | Referenced as confirming principles on statutory construction; used in submissions but court applied Fowler guidance. |
| Rossendale Borough Council v Hurstwood Properties (A) Limited [2021] UKSC 16, [2022] AC 690 | Importance of legislative purpose in statutory interpretation. | Relied on by the Tax Authority to emphasise purposive approach to construing section 1259(3) and section 882. |
| GDF Suez Teesside Ltd v Revenue and Customs Commissioners [2018] EWCA Civ 2075, [2019] 1 All ER 528, [2018] STC 2113 | Principle that where an Act is amended the amended statute may be construed as a whole; guidance on considering the amending Act. | Cited in argument and accepted by the court as supporting the conclusion that the FA 2016 amendments should be read into the text for periods to which they apply. |
| Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586 | Conditions under which courts may correct obvious drafting errors (three‑part test: purpose, inadvertence, substance of intended provision). | Applied to assess whether the drafting defect in section 882(5B) could be remedied; court agreed with the UT that Inco Europe conditions were met. |
| Pollen Estate Trustee Co Limited v Revenue and Customs Commissioners [2013] EWCA Civ 753, [2013] 1 WLR 3785 | Example of Inco Europe correction in a fiscal context. | Referenced as illustrative precedent supporting correction of a drafting error in taxation legislation; relied on in reasoning that Inco Europe principles can apply here. |
| Jones v Wrotham Park Settled Estates [1980] A.C. 74 | Authority cited in discussion of limits on judicially inserting words. | Quoted in the Inco Europe exposition and considered by the court in assessing scope for correcting drafting errors. |
| Western Bank Ltd v Schindler [1977] Ch 1 | Commentary on limits to judicial insertion of words where alteration would be too far‑reaching. | Referenced in the Inco Europe context as a cautionary example; considered in evaluating whether correction was appropriate. |
| [2023] EWCA Civ 1179, [2023] STC 1738 | Appeal upholding UT decision in BCM Cayman (not addressing section 1259 in that judgment). | Mentioned to note that the Court of Appeal upheld the UT in BCM Cayman but did not decide on the section 1259 point relevant here. |
Court's Reasoning and Analysis
The court's analysis proceeded from established principles for construing deeming provisions (primarily Fowler). Section 1259(3) requires a notional exercise: compute what a UK resident company's profits would be if it carried on the LLP's trade. The court examined whether that statutory hypothesis requires importing the LLP's real‑world ownership and control attributes into the notional company for the purpose of applying Part 8 (the IFA regime) and, in particular, the related‑party gateway in section 882.
The court concluded that the statutory purpose (to calculate profits of the firm for corporation tax purposes) requires replication of the real‑world trade circumstances in the notional computation so far as necessary to make the computation meaningful. That reproduction extends to ownership/control characteristics when those characteristics are necessary to determine whether the related‑party exception in section 882 applies. Without such attribution, the related‑party gateway would be rendered ineffective (section 882(1)(b) would always be satisfied), producing results inconsistent with the statutory design and purpose. The court accepted the reasoning of the FTT and the UT that checking the related‑party exception is part of the notional computation.
On the FA 2016 issues, the court held that the amendments to section 882 effected by section 52 apply in accounting periods beginning on or after 25 November 2015 and must be applied when assessing debits claimed in those periods, even if the IFAs were originally acquired before that date, because corporation tax is assessed period by period and the applicable law is that in force in the accounting period in which the debit is claimed. The court also held that the drafting defect in section 882(5B) was corrigible under Inco Europe: Parliament's intention was clear, the error was inadvertent, and the court could identify the substance of the provision Parliament would have enacted.
Holding and Implications
DISMISSED
Holding: The appeal was dismissed; the decisions of the FTT and the UT were upheld. The court held that the notional UK resident company posited by section 1259(3) must be attributed the ownership and control characteristics of the LLP, at least for the purpose of applying section 882 (the related‑party gateway in Part 8), and that the FA 2016 amendments apply to accounting periods beginning on or after 25 November 2015. The drafting error in section 882(5B) can be corrected under Inco Europe principles.
Implications: Direct effect is that the appellants are not entitled to the amortisation debits claimed (Part 8 relief was excluded by operation of the related‑party gateway as the notional company is to be treated as related to the corporate members). The court endorsed the analyses of the FTT and UT on the central issues raised.
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