BCM Cayman LP and Bluecrest Capital Management Cayman Limited v The Commissioners for HM Revenue and Customs [2022] UKUT 00198 (TCC)
| Jurisdiction | UK Non-devolved |
| Judge | Upper Tribunal Judge Thomas Scott,Mr Justice Leech |
| Neutral Citation | [2022] UKUT 00198 (TCC) |
| Subject Matter | 22 July 2022 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Published date | 02 August 2022 |
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UT Neutral citation number: [2022] UKUT 00198 (TCC)
UT (Tax & Chancery) Case Number: UT/2020/000368
Upper Tribunal
(Tax and Chancery Chamber)
Hearing venue: Rolls Building, Fetter Lane, London
Heard on: 08,09,10
and 13 December 2021
with further written
submission on 16
December 2021.
Judgment date: 22
July 2022
CORPORATION TAX – acquisition by Cayman Islands limited partnership of
interest in UK limited partnership – liability of general partner in Cayman partnership
to corporation tax on certain profit allocations – whether Cayman partner entitled to
tax deduction for interest on borrowings to acquire interest in UK limited partnership
– appeal dismissed
Before
MR JUSTICE LEECH
JUDGE THOMAS SCOTT
Between
(1) BCM CAYMAN LP
(2) BLUECREST CAPITAL MANAGEMENT CAYMAN LIMITED
Appellant and
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS
Respondents
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Representation:
For the Appellant: Malcolm Gammie QC and Michael d’Arcy, instructed by Slaughter
and May
For the Respondent: Rupert Baldry QC and Thomas Chacko, instructed by the General
Counsel and Solicitor to HM Revenue and Customs
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DECISION
I. Introduction
This is the decision on the appeal by BCM Cayman LP (“BCMC LP” or the “Cayman
Partnership”) and BlueCrest Capital Management Cayman Limited (“BCMCL”)
(together the “Appellants”) against the decision of the First-tier Tribunal (“FTT”)
reported at [2020] UKFTT 0298 (TC) (the “Decision”).
The BlueCrest group carries on the trade of investment management. At all relevant
times, a UK limited partnership, BlueCrest Capital Management LP (“BCM LP” or the
“UK Partnership”), carried on part of that trade. In 2007 certain members of BCM LP
wished to sell part of their interests in the UK Partnership which amounted to 19% of the
equity. The remaining members agreed to acquire those interests with a view to providing
an “equity pool” for other members or employees of the group. BCMC LP, the First
Appellant, was formed in the Cayman Islands as a limited partnership to hold the interests
of the buyers. BCMCL, the Second Appellant, is a limited company and was incorporated
in the Cayman Islands to become the general partner of the Cayman Partnership. BCMCL
was wholly owned by BlueCrest Capital Management Cayman Holdings Ltd
(“BCMCHL”). The Cayman Partnership was governed by a deed of partnership (the
“BCMC LP Deed” or the “Cayman Partnership Deed”).
The sellers assigned their combined 19% interest in the UK Partnership to BCMCL
and it then contributed that interest to BCMC LP as a capital contribution. BCMC LP
became a party to the BCM LP’s amended and restated deed of partnership (the “BCM
LP Deed” or the “UK Partnership Deed”). As a limited partnership, BCMC LP did not
have separate legal personality and one of the principal issues which we have to determine
is the effect of the arrangement whereby BCMC LP became a partner in the UK
Partnership and, in particular, whether all of the partners of BCMC LP also became
partners in the UK Partnership.
To fund the acquisition BCMCL borrowed $365 million. In particular, it borrowed
$200 million from the Royal Bank of Scotland plc (“RBS”) and issued $165 million in
loan notes (the “Loan Notes”) to the sellers. As part of the structure which was put in
place at the same time, RBS became a member of BCMC LP (and was identified as the
“Corporate Limited Partner”). RBS also entered into a swap transaction with BCMCHL
governed by the 2002 ISDA Master Agreement which the parties called the “Total Return
Swap” or “TRS”.
On 11 June 2008 RBS assigned its interest in BCMC LP to Fyled Energy Ltd (later
renamed Morgan Stanley Montrose Investments Ltd) (“Fyled”), which became the
Corporate Limited Partner. The TRS was novated with the effect that RBS was replaced
by Fyled as the counter-party and BCMCHL also entered into the “Financial Contract”
(together with a side letter) with another counter-party, Morgan Stanley Cooper Ltd (“MS
Cooper”), a company incorporated in the UK and wholly owned by the Morgan Stanley
Group. These new arrangements collectively replaced the TRS.
BCM LP allocated profits in the UK Partnership to the members of the UK Partnership
in a particular order of priority. In particular, it allocated profits to BCMC LP to cover the
monthly payment of interest due under the RBS loan facility before then allocating profits
to the limited partners in the agreed proportions set out in their letters of allocation or the
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