BlackRock Loses Appeal Over UK Tax Dispute in Barclays Global Investors' Acquisition

Zinger Key Points
  • The appeal concerns the US part of the BGI business, acquired through a corporate structure involving a UK tax resident entity.
  • Currently, index funds and ETFs represent $6.6 trillion of BlackRock's $10 trillion in assets under management.

BlackRock Inc BLK, the world’s largest asset manager, faced a setback in its appeal concerning the U.K. tax it sought to reclaim from HM Revenue & Customs on its $13.5 billion acquisition of Barclays Global Investors (BGI) in 2009. 

The appeal revolves around a structure BlackRock established during the Barclays acquisition. Specifically, it concerns the U.S. part of the BGI business, acquired through a corporate structure involving a U.K. tax resident entity, LLC5, funded by $4 billion in loans from another BlackRock entity based in the U.S.

The Court of Appeal’s decision marks the conclusion of a lengthy legal dispute. Initially, HMRC rejected the tax deductions, but the First-tier Tribunal ruled in favor of BlackRock, the Financial Times noted. 

Related: BlackRock Starts Strong In 2024 With Q1 AUM & Fees Surge, Stock Gains

However, this decision was overturned on appeal to the Upper Tribunal and eventually upheld by the Court of Appeal, albeit on different grounds. The Court found that the tax deductions for the interest on the loans were disallowed under the “unallowable purpose rule,” asserting that LLC5 had a primary intention of obtaining a tax advantage by entering into the loans.

BlackRock believed it was entitled to a £654 million tax-deduction claim. Despite the ruling, BlackRock stated that it had already paid all of its U.K. corporation tax, including taxes related to this matter, and emphasized that the hearing pertains to a specific point of tax law. The company added that it is currently evaluating its next steps.

Led by its chair and chief executive Larry Fink, BlackRock’s acquisition of BGI during the financial crisis was pivotal, catapulting it into a dominant position in passive investing. 

Currently, index funds and ETFs represent $6.6 trillion of BlackRock’s $10 trillion in assets under management. 

BlackRock is now looking to expand into higher-margin alternatives strategies, recently announcing a deal to acquire alternatives manager Global Infrastructure Partners, solidifying its position as a major player in the alternatives market.

Price Action: BLK shares are down 2.15% at $759.08 on the last check Friday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

BlackRock photo by Michael Vi on Shutterstock

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