Biffa (Jersey) Ltd and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 09 January 2015 |
| Date | 09 January 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Greg Sinfield
Costs Procedure Applications for costs by appellants and respondents Application to amend decision.
The First-tier Tribunal (FTT) has refused a taxpayer company's application to amend FTT decision Biffa (Jersey) Ltd TAX[2014] TC 04094 and has determined the allocation of costs in respect of that case. The case involved a tax avoidance scheme comprising a complicated series of intra-group financing transactions designed to secure a tax deduction for financing costs in one group company, but without giving rise to a tax charge on the financing income in another group company. Although there were two connected appeals, the FTT found that there was no reason to depart from the straightfoward approach of ordering the unsuccessful party in each appeal to pay the costs of the successful party.
The FTT case of Biffa (Jersey) Ltd TAX[2014] TC 04094 involved a complicated series of intra-group financing transactions designed to secure a tax deduction for financing costs in one group company (BHL), but without giving rise to a tax charge on the financing income in another group company (BJL). HMRC sought to deny BHL a deduction of 14.1m as deemed interest, but prior to the hearing HMRC accepted that BHL was entitled to make this deduction and therefore the FTT allowed BHL's appeal. Initially HMRC sought to tax BJL on 14.1m of interest income, but just over a month before the hearing BJL's representative pointed out that HMRC had overlooked that the majority of deemed interest had accrued in an earlier accounting period which had been closed without adjustment. HMRC accepted this point, thus reducing the amount of interest sought to be brought into account to 500,000. At the hearing the FTT dismissed BJL's appeal, but rejected an alternative argument contended by HMRC. Both appeals had been allocated as complex cases under the Tribunal Procedure (First-Tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 23 and neither BJL nor BHL had opted out of the costs regime.
This case deals with three applications made following the release of the above decision:
1) an application on behalf of BJL, asking for the decision to be amended to [spell] out that the appeal against the assessment has been allowed in part (with the matter adjourned for the parties to try to agree figures on the basis of the decision);
2) an application on behalf of BJL and BHL, for an order that HMRC pay BJL and BHL the costs of their respective appeals; and
3) an application by HMRC for an order that BJL pay 65% of the costs of HMRC in relation to BJL's appeal.
The FTT refused BJL's application for the decision to be amended because the FTT did not allow BJL's appeal in part and it would not have been appropriate to amend the decision to say that it did.
On the issue of costs BJL contented that because it appealed against an amendment of 14.1m and was found only to be liable to tax on 500,000, it succeeded in respect of more than 95% of the tax at stake. BJL also argued that it succeeded in relation to HMRC's alternative argument and so should be awarded its costs in full. BHL contended that it succeeded completely in its appeal and should be awarded its costs. HMRC contend that BJL and BHL were participants in the same scheme and that it would be inappropriate to treat the two appeals as separate and independent. It submitted that its arguments against BJL and BHL were in the alternative and success in either argument meant that HMRC succeeded. HMRC accepted, however, that they conceded their argument against BHL only a few months before the hearing and that this should be recognised in the order for costs. HMRC submitted that the starting point for an award of costs would be to award HMRC their costs in relation to BJL's appeal but reduced as appropriate. HMRC said that it would not be appropriate to award BHL its costs in relation to its appeal. HMRC suggested that their costs should be reduced by 35% to reflect the fact that they conceded one of their three arguments against the scheme, i.e. in the BHL appeal. HMRC commented that if BJL were ordered to pay HMRC's costs in relation to BJL's appeal and HMRC were ordered to pay BHL the costs of its appeal this could result in HMRC paying more than they receive.
The FTT referred to the case of Versteegh LtdTAX[2014] TC 03526 and the Civil Procedure Rules, Pt. 44 (available at www.justice.gov.uk/courts/procedure-rules/civil/rules/part-44-general-rules-about-costs) and found there to be no reason to depart from the general rule that the unsuccessful party should pay the costs of the successful party.
The FTT did not agree that BJL had succeeded in its appeal. Although the amount of tax at stake had reduced from 14.1m to 500,000 this did not affect the issues in the appeal and should not lead to any reduction in costs awarded. The FTT also found that HMRC not succeeding in relation to the alternative argument should not result in any reduction in the costs awarded. The FTT concluded that BJL should not be awarded its costs, but should pay HMRC's costs of the appeal on the standard basis, to be assessed if not agreed.
In respect of the BHL appeal, HMRC...
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