One minute with Sarah Bond, partner at Freshfields Bruckhaus Deringer LLP.
What’s keeping you busy at work?
My current diet consists mainly of UK and international tax disputes, covering a broad range of topics from transfer pricing, CFC tax and royalty withholding taxes to unallowable purposes and capital allowances. Although the specific rules in question vary, there are some clear underlying themes in the challenges being raised by HMRC, and it is not surprising that base erosion and deductibility in particular continue to feature heavily – I expect they will do for some time to come.
If you could make one change to tax, what would it be?
I would like to see the mutual agreement procedure (MAP) adapted to involve the affected taxpayer more. All too frequently long-running transfer pricing disputes are further prolonged by protracted competent authority discussions as part of the MAP, while the taxpayer is largely kept in the dark as to what progress is being made. Typically, the taxpayer also has little opportunity to ensure that the competent authorities’ discussions are proceeding on the basis of an accurate set of facts. With use of the MAP increasing and a version of it proposed as the mechanism to provide certainty on issues arising under Pillar One, it will be important for the process to work effectively and efficiently, including from the taxpayer’s perspective, so as to preclude a deluge of domestic challenges from taxpayers that are dissatisfied with the outcome.
Has a recent tax case caught your eye?
The Upper Tribunal decision in HMRC v BlackRockHoldco 5 LLC [2022] UKUT 199 (TCC) was long-awaited and has attracted a lot of attention, as regards both the unallowable purposes and transfer pricing aspects.
On the unallowable purposes side, this decision provided welcome clarification for taxpayers that (contrary to the First-tier Tribunal decision) it is not possible to impute to a company a main purpose of obtaining a tax advantage simply on the basis that securing that advantage is an inevitable and inextricable consequence of entering into a loan. It is also useful to have confirmation that the exercise of ascertaining the purposes of a company requires looking beyond the stated motives of the directors and should involve consideration of the broader circumstances.
By contrast, the transfer pricing aspects of the decision have created some consternation – in particular, the implication that intra-group lending arrangements could potentially be subject to transfer pricing challenge and disregarded in their entirety if they do not replicate the covenants that would be required by third party lenders. The decision also raises difficult questions about the appropriate comparator in testing whether a loan would have been made at all in an arm’s length scenario. While the outcome in BlackRock itself may in part be a feature of the corporate structure adopted, additional guidance on these points would be helpful and I for one will be looking out for an appeal.
What do you know now that you wish you’d known at the start of your career?
Many things! Perhaps the most important would be the value of asking open questions, observing how they are reacted to and paying close attention to the answers. Working on a lot of disputes means I spend a fair amount of time across the table (or, more recently, on Teams calls) with HMRC and, in my experience, the key to unlocking a tricky discussion can often be found this way.
Finally, you might not know this about me but...
I’m a feeder! The kitchen is my happy place and I love nothing more than creating a menu (always with a theme) and cooking up a storm for lots of people. In 2021, frustrated by another lockdown, I set myself the challenge of having a different meal for dinner every day of the year – and with the exception of a few different iterations of pizza (albeit with different toppings), managed to achieve it. I found it very satisfying and enjoyed the variety, although my husband and kids were less enamoured of some of the more experimental recipes...
One minute with Sarah Bond, partner at Freshfields Bruckhaus Deringer LLP.
What’s keeping you busy at work?
My current diet consists mainly of UK and international tax disputes, covering a broad range of topics from transfer pricing, CFC tax and royalty withholding taxes to unallowable purposes and capital allowances. Although the specific rules in question vary, there are some clear underlying themes in the challenges being raised by HMRC, and it is not surprising that base erosion and deductibility in particular continue to feature heavily – I expect they will do for some time to come.
If you could make one change to tax, what would it be?
I would like to see the mutual agreement procedure (MAP) adapted to involve the affected taxpayer more. All too frequently long-running transfer pricing disputes are further prolonged by protracted competent authority discussions as part of the MAP, while the taxpayer is largely kept in the dark as to what progress is being made. Typically, the taxpayer also has little opportunity to ensure that the competent authorities’ discussions are proceeding on the basis of an accurate set of facts. With use of the MAP increasing and a version of it proposed as the mechanism to provide certainty on issues arising under Pillar One, it will be important for the process to work effectively and efficiently, including from the taxpayer’s perspective, so as to preclude a deluge of domestic challenges from taxpayers that are dissatisfied with the outcome.
Has a recent tax case caught your eye?
The Upper Tribunal decision in HMRC v BlackRockHoldco 5 LLC [2022] UKUT 199 (TCC) was long-awaited and has attracted a lot of attention, as regards both the unallowable purposes and transfer pricing aspects.
On the unallowable purposes side, this decision provided welcome clarification for taxpayers that (contrary to the First-tier Tribunal decision) it is not possible to impute to a company a main purpose of obtaining a tax advantage simply on the basis that securing that advantage is an inevitable and inextricable consequence of entering into a loan. It is also useful to have confirmation that the exercise of ascertaining the purposes of a company requires looking beyond the stated motives of the directors and should involve consideration of the broader circumstances.
By contrast, the transfer pricing aspects of the decision have created some consternation – in particular, the implication that intra-group lending arrangements could potentially be subject to transfer pricing challenge and disregarded in their entirety if they do not replicate the covenants that would be required by third party lenders. The decision also raises difficult questions about the appropriate comparator in testing whether a loan would have been made at all in an arm’s length scenario. While the outcome in BlackRock itself may in part be a feature of the corporate structure adopted, additional guidance on these points would be helpful and I for one will be looking out for an appeal.
What do you know now that you wish you’d known at the start of your career?
Many things! Perhaps the most important would be the value of asking open questions, observing how they are reacted to and paying close attention to the answers. Working on a lot of disputes means I spend a fair amount of time across the table (or, more recently, on Teams calls) with HMRC and, in my experience, the key to unlocking a tricky discussion can often be found this way.
Finally, you might not know this about me but...
I’m a feeder! The kitchen is my happy place and I love nothing more than creating a menu (always with a theme) and cooking up a storm for lots of people. In 2021, frustrated by another lockdown, I set myself the challenge of having a different meal for dinner every day of the year – and with the exception of a few different iterations of pizza (albeit with different toppings), managed to achieve it. I found it very satisfying and enjoyed the variety, although my husband and kids were less enamoured of some of the more experimental recipes...
