Farnborough Airport Properties Company and Another v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 04 October 2017 |
| Neutral Citation | [2017] UKUT 394 (TCC) |
| Date | 04 October 2017 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2017] UKUT 0394 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Greg Sinfield, Judge Kevin Poole
Philip Ridgway, counsel, instructed by KPMG LLP, appeared for the appellant
Jonathan Bremner, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Corporation tax – Group relief – CTA 2010, s. 154 – Appointment of receivers over the whole property of a company – Whether arrangements in place to deny the surrender of group relief.
The Upper Tribunal dismissed the taxpayer's appeal: the appointment of receivers over the whole property of a company constituted “arrangements” which broke the group relationship for group relief purposes.
The taxpayer companies included, in amended corporation tax returns for the period to 31 May 2012, claims for group relief surrendered by a third company (“PH2L”). All three companies were 75% subsidiaries of the same ultimate parent company.
PH2L had been placed into receivership in June 2011, effected by the appointment by the bank of a Receiver over the whole of PH2L's property. The Debenture under which the appointment was made gave the bank fixed and/or floating charges over the whole of the property, assets and undertaking of PH2L (the floating charge crystallising into a fixed charge on appointment of a Receiver); and gave the Receiver powers (inter alia) to carry on the business of PH2L. The statutory Notice of Appointment of the Receiver recorded that the Receiver's appointment was over “the whole of the property of the company” (as opposed to part of such property).
By closure notices issued in December 2014, HMRC denied the claims to group relief. The taxpayers' appeals were dismissed by the First-tier Tribunal, and the matter appealed to the Upper Tribunal.
The Upper Tribunal said the First-tier Tribunal had decided that once the Receiver had been appointed, the shareholders of PH2L did not have “control” of PH2L; the effect of the appointment of the Receiver over the whole of the property of PH2L constituted “arrangements” under s. 154(3); PH2L was no longer a member of the same group as the taxpayer companies in the accounting period ended 31 May 2012; therefore the taxpayers' appeals fell to be dismissed.
Before the Upper Tribunal, the taxpayers' submissions were on:
- The Control Issue;
- The Arrangements Issue.
The first of these itself divided into two points:
- Whether a receiver can or could obtain control of a company as defined by CTA 2010, s. 1124 (the Receiver's Control Issue); and
- Whether the shareholders of a company can or could obtain control of that company once receivers are appointed over all the assets (the Shareholders' Control Issue).
The second concerned whether the appointment of a receiver is a type of “arrangement” that was envisaged by CTA 2010, s. 154 (“the Arrangements Issue”).
Issue 1(a) – the Receiver's Control Issue: the Upper Tribunal decided this issue in favour of the taxpayers. The Debenture document pursuant to which the Receiver had been appointed was not an “other document regulating [PH2L]”, within the meaning contemplated by CTA 2010, s. 1124(2). That sub-section was concerned with constitutional documents akin to articles of association (that is, one setting out governance arrangements). Thus it did not matter however extensive the powers conferred by the Debenture, since it was not a relevant document.
Issue 1(b) – the Shareholders' Control Issue: in the Upper Tribunal's view, once the Receiver was appointed, its powers were so extensive that the shareholders could no longer be fairly said to have, per CTA 2010, s. 1124(2), “the power to secure that the affairs [of PH2L were] conducted in accordance with [their] wishes”. The taxpayers further submitted that, if control had been lost, the shareholders would be able to recover control of PH2L by paying off the receivership debt (and therefore “could obtain control” within the meaning in Effect 2 of CTA 2010, s. 154). But such an argument, if correct, would provide scope for avoidance of the clear purpose of the provisions in question – the Upper Tribunal did not consider such an interpretation would be consistent with such overall purpose, and therefore it had to be rejected.
The Upper Tribunal also noted, in passing, that the “current period” referred to in Effect 2 was the accounting period for which the surrendering amounts arise, rather than the accounting period of the claimant company for which group relief was claimed.
Issue 2 – the Arrangements Issue: the taxpayers' argument was that “arrangements” must be interpreted as a general term to achieve the purpose of CTA 2010, s. 154. That purpose was to prevent arrangements whereby a group passes entitlement to tax losses to a third party without also passing economic ownership – and the appointment of the Receiver was not such an arrangement, and so could not break a group under Effect 2. In the Upper Tribunal's view though, “arrangements” had a very broad meaning. Once the Receiver was appointed, the shareholders no longer had control (“the Shareholders' Control Issue”, above); accordingly, the appointment of the Receiver under the Debenture, had the effect described in Effect 2 in s. 154. The prior execution of the Debenture, and the occurrence of an event of default under it (giving rise to the right to appoint a receiver), were not themselves arrangements which had Effect 2.
The Upper Tribunal said it was, further, aware that this interpretation might be regarded as sitting somewhat uneasily with CTA 2010, s. 155B (Certain mortgage arrangements not within s. 154 and 155); but, conscious of Lord Hodge's comment in the Rangers case that “the tax code is not a seamless garment”, it considered this to be one of those situations where the legislative patterns simply did not fully match up.
In light of the Upper Tribunal's conclusions on Issues 1(b) and 2, the taxpayers' appeals fell to be dismissed.
The First-tier Tribunal had explained the matter in terms that the Receiver had “control” of the surrendering company within CTA 2010, s. 1124(2). The Upper Tribunal in fact disagreed with this (because, it said, the Debenture was not a document contemplated by s. 1124(2)(b)). Nevertheless the taxpayers remained defeated, since the appointment of the Receiver still meant the shareholders ceased to have control of the relevant company.
[1] The Appellants (referred to in this decision simply as “Farnborough”) appealed to the First-tier Tribunal (Tax Chamber) (“FTT”) against decisions by the Respondents (“HMRC”) to disallow Farnborough's claims for group relief under section 154 of the Corporation Tax Act 2010 (“CTA 2010”) of some £10.5 million from Piccadilly Hotels 2 Limited (“PH2L”) for the accounting period ending 31 May 2012.
[2] In a decision released on 17 June 2016 with neutral citation [2016] TC 05184 (“the Decision”), the FTT (Judge McNall) held that PH2L ceased to be a member of the same group of companies as Farnborough in the relevant accounting period because, under section 154 CTA 2010, the appointment of a receiver over PH2L constituted arrangements which had the effect that the shareholders of Farnborough no longer controlled it for the purposes of the group relief provisions. In consequence, PH2L could not validly surrender group relief to Farnborough. Accordingly, the FTT dismissed Farnborough's appeal. Save as otherwise indicated, paragraph references in square brackets in this decision are to the paragraphs in the Decision.
[3] Farnborough now appeals, with permission of this Tribunal, against the Decision on the grounds that the FTT erred in law in determining that:
- the shareholders no longer had control over PH2L within the meaning of section 1124 CTA 2010 once receivers had been appointed in respect of that company; and
- entering into a Deed of Debenture and/or the appointment of a receiver thereunder gives rise to arrangements which have Effect 2 in section 154(3) CTA 2010.
[4] For reasons given below, we have concluded that the appeal must be dismissed.
[5] There was no dispute before the FTT about the facts which were set out in a Statement of Agreed Facts which the FTT reproduced at [2] as follows:
- The Appellants and Piccadilly Hotels 2 Limited (PH2L) are each at least 75% subsidiaries of Kelucia Limited (KL) for the purposes of section 152 of the Corporation Tax Act 2010 (CTA 2010). The relevant group relationships are as follows:The Appellants are 100% subsidiaries of Gatevalley Limited, which is in turn (partly directly and partly indirectly) an 80.5% subsidiary of KL;PH2L is a 100% subsidiary of Piccadilly Hotels 1 Limited, which is in turn (partly directly and partly indirectly) a 92.3% subsidiary of KL.
- On 27 June 2011 PH2L was placed into receivership. This was effected by the appointment of a receiver by Bank of Scotland plc over the whole of the property of PH2L.
- By a letter dated 16 January 2014, Mr Bruce Hunter of Rotch Property Group Limited requested non-statutory clearance in respect of claims and surrenders of group relief between the Appellants and PH2L. The Respondent refused clearance by email on 31 January 2014.
- On 30 May 2014, the First Appellant (Farnborough Airport Properties Company Ltd) submitted an amended corporation tax return for the period ended 31 May 2012 (the First Appellant's Amended Return) including a claim to group relief of £5,721,318 surrendered to it by PH2L.
- Also on 30 May 2014, the Second Appellant (Farnborough Properties Company Ltd) submitted an amended corporation tax return for the period ended 31 May 2012 (the Second Appellant's Amended Return) including a claim to group relief of £4,906,391 surrendered to it by PH2L.
- The Respondent opened enquiries into the Amended Returns on 3 October 2014. The Respondent wrote to Mr Hunter on 13 October 2014, setting out why...
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