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BlackRock, the world’s largest asset manager, has lost an appeal relating to UK tax it sought to reclaim from HM Revenue & Customs on its $13.5bn acquisition of Barclays Global Investors in 2009.
The appeal relates to a structure that was put in place by BlackRock when it bought the business from Barclays.
The US part of the BGI business was acquired through a corporate structure that included a UK tax resident entity, LLC5, which was funded by $4bn of loans from another BlackRock group entity based in the US.
The UK tax resident entity had claimed tax relief for interest costs linked to the loans, and tried to reduce the UK tax bills of other, profitable companies in the BlackRock group by setting the resulting tax losses against their profits.
The Court of Appeal decision handed down on Thursday is the culmination of a years-long dispute.
HMRC originally rejected the tax deductions, before the First-tier Tribunal found in BlackRock’s favour. That decision was reversed on appeal to the Upper Tribunal, and upheld by the Court of Appeal, albeit on different grounds.
The Court of Appeal found that the tax deductions for the interest on the loans were disallowed under the “unallowable purpose rule”. It concluded that, in becoming a party to the loans, LLC5 had a main purpose of obtaining a tax advantage.
BlackRock said it had “paid all of its UK corporation tax, including the payment some time ago of all tax due in relation to this matter”, and that the “purpose of this hearing relates to the operation of a specific point of tax law”.
The asset manager added that it was “closely evaluating our next steps”.
Led by its chair and chief executive Larry Fink, BlackRock’s financial crisis-era purchase of BGI — including its iShares suite of exchange traded funds — was a transformational deal that gave it a dominant position in passive investing and helped make it the world’s largest money manager.
At the end of December, index funds and ETFs accounted for $6.6tn in assets under management, two-thirds of BlackRock’s $10tn in assets.
Now BlackRock is seeking to push further into higher-margin alternatives strategies. In January it struck a deal to buy alternatives manager Global Infrastructure Partners, which has about $106bn in assets under management, for more than $12.5bn in cash and stock. The acquisition will make BlackRock the world’s second-largest manager of private infrastructure asset, and boost the leadership of its alternatives business.
