JST (UK) Limited v The Commissioners for HMRC

Facts

JST (UK) Limited, the UK subsidiary of the Japanese company JST Mfg Co Ltd, had provided market entry services to its parent between 2002 and 2007 under a service arrangement made in 2002. After a Japanese tax audit disallowed the parent's deductions for part of those payments, the parent invoiced JST on 5 December 2012 for repayment of £1,425,000, which JST paid on 18 January 2013 under what it described as duress, the sum representing 15% of its turnover. JST recorded the payment as an exceptional administrative expense and deducted it for corporation tax for the year ended 31 March 2013. HMRC opened an enquiry on 12 November 2014 into whether the payment was incurred wholly and exclusively for the purposes of the trade, and, after extensive correspondence with JST's advisers BDO and a settlement indicated on 6 October 2017, issued a closure notice on 25 October 2017 denying relief and increasing corporation tax by £342,000. JST, then pursuing restitution litigation in Japan which failed before the Japanese Supreme Court on 23 April 2018, appealed to HMRC only on 27 July 2018. HMRC refused to admit the late appeal on 4 November 2019 and JST notified the Tribunal on 5 June 2020. An earlier First-tier Tribunal decision was set aside by consent following grants of permission by the FTT and the Upper Tribunal, and the application was remitted for rehearing.