Muller: ‘Related Party’ Rules Retain Substantive Bite In LLP Structures

The UK Court of Appeal confirmed that the ‘related party’ rules in Part 8 of the Corporation Tax Act 2009 apply to LLP structures. 

Background

In Muller UK & Ireland Group LLP v HMRC [2026]¹ (“Muller”), a dispute arose from an internal restructuring within the Muller group. The appellants included three members of the Muller group (the “Corporate Members”). In 2013, the Corporate Members transferred their respective trades and assets, including goodwill and intellectual property, to another group entity, a UK LLP (Muller UK and Ireland Group LLP (the “Muller Partnership”)).

The Muller Partnership recorded the assets at fair value and amortised the assets and goodwill over five years in its accounts. The Corporate Members, in calculating their taxable profits from the Muller Partnership, claimed tax deductions for that amortisation under the gateway provision in Part 8 of the Corporation Tax Act 2009 (“CTA”). His Majesty's Revenue and Customs (“HMRC”) denied the deductions on the basis that the transfers were from a related party and therefore fell outside the Part 8 CTA gateway.

The Legislation

Part 8 of the CTA denies deductions for assets acquired from a ‘related party’. While Part 8 does not expressly apply to partnerships, Section 1259(3) CTA provides that, generally for corporation tax purposes, the profits of a UK resident corporate partner are deemed to be those that would be the taxable profits if the partnership’s business were carried on by a UK resident company (the ‘notional company’).

The Decision

The issue before the UK Court of Appeal (“Court of Appeal”) was whether, for the purposes of Part 8 CTA, the Muller Partnership (as a notional company) should be treated as a ‘related party’.

The appellants argued that the deeming provision in Section 1259 CTA was limited to computing the nature of the partnership’s trade as if it were carried on by a company. On that basis, there was no requirement to consider the ownership and control attributes of the Muller Partnership relating to the notional company. Accordingly, the appellants argued that the deemed acquisition of the assets by the Muller Partnership as a ‘notional company’ was not a related party transaction and the statutory gateway to relief under Part 8 CTA would be satisfied.

HMRC disagreed with this approach. Relying on the UK Supreme Court’s decision in Fowler v Revenue,² HMRC argued that attributing ownership and control to the notional company was a “necessary corollary” of the deeming provision. Therefore, the deeming provision applied both to computing profits and to prevent deductions arising from transactions between entities under common control.

The Court of Appeal found in favour of HMRC. The Court of Appeal rejected the idea that the profits of the notional company exist in a vacuum. The ‘trade’ for the purposes of Section 1259 CTA is the actual trade carried on by the Muller Partnership, conducted through the agency of the Corporate Members that own and control it. Accordingly, the computation must reflect the real-world context, including the identity of the parties and the circumstances of the transactions. The Court of Appeal held that, at least for the purposes of applying the related party rules, the notional company must be treated as having the same control structure as the partnership. Since the Muller Partnership was owned and controlled by the transferring entities, the notional company was likewise under their control. Therefore, there was no principled basis for a narrow interpretation of the deeming provision that ignored the Muller Partnership’s ownership characteristics.

The Court of Appeal also addressed amendments introduced by the Finance Act 2016, which expanded the definition of ‘related party’. It confirmed that, consistent with the annual nature of corporation tax, those amendments apply to accounting periods after their commencement, regardless of when the underlying assets were acquired. In addition, the court was prepared to acknowledge and correct the drafting defect in the legislation, applying the principles in Inco Europe³ to give effect to Parliament’s clear intention.

Key Takeaways

Muller is a clear reminder that statutory fictions will be interpreted in light of their purpose. The Court of Appeal’s reliance on Fowler confirms that where a statutory fiction is introduced to replicate a real-world scenario, the control and ownership factors will often follow as a matter of necessary implication. The decision also closes off a potential planning argument. LLP structures cannot be used to sidestep Part 8 restrictions by exploiting the absence of explicit partnership provisions.

Footnotes

1. Muller UK & Ireland Group LLP v HMRC [2026] EWCA Civ 248.

2. Fowler v Revenue and Customs Commissioners [2020] UKSC 22.

3. Inco Europe Ltd v First Choice Distribution [2000] 1 WLR 586.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.