Muller Escalates Legal Fight with HMRC Over Corporation Tax
Yoghurt manufacturer Muller, famous for its Corner and Rice products, has launched a significant legal challenge against HM Revenue and Customs (HMRC) at the Court of Appeal. The dispute centres on whether companies can claim tax deductions for goodwill and brands when these assets are purchased internally through partnership structures.
The Core of the Tax Dispute
Muller UK and Ireland Group, along with related entities including Muller Dairy UK and Robert Wiseman and Sons, are contesting HMRC's decision to block corporation tax breaks. The controversy arose in 2013 when three Muller companies transferred their trades and well-known brands to a newly formed partnership, Muller UK and Ireland Group. Following this transfer, the group attempted to claim tax deductions for the amortisation – the gradual write-off – of these brands and associated goodwill.
HMRC intervened, applying related party rules designed to prevent companies from creating artificial tax advantages through internal transactions. The tax authority argued that such arrangements could allow businesses to manufacture tax breaks without genuine economic substance.
Legal Arguments and Previous Rulings
Muller's legal team contended that partnership taxation law requires imagining the trade being conducted by a notional UK-resident company. However, HMRC countered that if the law necessitates this hypothetical company, it must also possess the same characteristics as the partnership it represents, thereby maintaining the related party restrictions.
The case has already progressed through lower tribunals. In February 2023, the First-Tier Tribunal rejected Muller's arguments, a decision upheld by the Upper Tribunal upon appeal. Now, the matter has reached the Court of Appeal, where a one-day hearing is scheduled before Lord Justice Lewison, Lady Justice Asplin, and Sir Launcelot Henderson.
Background and Financial Context
Muller's UK operations have a storied history, originating in 1947 as Robert Wiseman Dairies in Scotland. The company went public on the London Stock Exchange in 1994 before being acquired by German dairy giant Muller in 2012, returning it to private ownership.
Financially, the UK and Ireland arm of Muller has shown resilience, bouncing back from substantial losses in 2023 to report a pre-tax profit of £34.3 million in September. This recovery underscores the high stakes of the tax dispute, as favourable rulings could significantly impact the company's future financial performance and tax liabilities.
The outcome of this appeal could set important precedents for how businesses structure internal partnerships and claim tax deductions, potentially influencing corporate tax strategies across various sectors in the UK.
