The Massachusetts Appeals Court upheld an Appellate Tax Board decision disallowing interest expense on certain intercompany financing transactions because the underlying agreements did not establish an “unqualified obligation to repay.” The taxpayers, subsidiaries of a British utility, entered into a series of complex agreements—deferred subscription agreements—to sell and repurchase stock. The agreements were meant to constitute debt for U.S. federal and state tax purposes and equity under U.K. law, which strictly forbids debentures between a U.K. entity and a foreign subsidiary. The specific issue was whether, under the relevant provisions of the agreements, the share repurchase was mandatory, in which case there was an “unqualified obligation to repay,” or merely discretionary. The court found that the provisions were ambiguous because they contained both mandatory and discretionary language. The court found no error in the board’s decision to give little weight to the taxpayers’ evidence regarding their subjective intent and agreed that the taxpayers’ twin goals of international tax arbitrage and avoiding the creation of debentures under U.K. law were more reliable considerations. Ultimately, the court held that the taxpayers failed to meet their burden of proving that the agreements constituted true indebtedness or an “unqualified obligation to repay.” Nat’l Grid Holdings, Inc. v. Comm’r of Revenue, No. 14-P-1662 (Mass. App. Ct. June 8, 2016).