Fidex Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 November 2011 |
| Neutral Citation | [2011] UKFTT 713 (TC) |
| Date | 07 November 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 713 (TC)
Sir Stephen Oliver QC (Chairman)
Michael Flesch QC, for the Appellant
John Tallon QC, instructed by the General Counsel for HMRC, for the Respondents
Appeal - strike out application - jurisdiction to hear appeal - appeal against closure notice - following lodging of appeal revenue seeking to rely on additional ground to defend closure notice - whether additional ground to be struck out - Rule 8(2)(a) of Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273)
1.The Appellant, Fidex Ltd seeks to strike out a part of the case pleaded by HMRC in their Statement of Case on the grounds that the Tribunal does not have jurisdiction to hear that part of HMRC's case.
2.The application is made pursuant to Rule 8(2)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273). This provides that:
The Tribunal must strike out the whole or part of the proceedings if the Tribunal does not have jurisdiction in relation to the proceedings or that part of them.
3.Fidex, it appears, was part of the BNP Paribas group of companies. Some £1m was spent in the purchase of a scheme designed to produce a loss of around €83m in the hands of Fidex; that loss was to be available for group relief throughout the BNP Paribas group of companies. The loss scheme was based on what are said to be consequences of the special computational provisions of the loan relationship code introduced by Finance Act 1996.
4.When an "enquiry" took place, the correspondence focused on one aspect of the computational provisions. A closure notice was issued and this revised the loss downwards by adjusting a "debit" from €83m to £3.6m. The closure notice explained that Fidex had wrongly used Finance Act 1996 schedule 9 subsec-or-para 19Aparagraph 19A of Schedule 9 to FA 1996 and that the "derecognition" of certain listed bonds and preference shares should not have occurred on the transition of one set of accounting standards (UK GAAP) to another (IFRS). After the matter had been appealed, HMRC sought to contend that the debit was prevented from being taken into account for tax purposes by virtue of Finance Act 1996 schedule 9 subsec-or-para 13paragraph 13 of Schedule 9 FA 1996. This "new" argument was based on the contention that the loan relationships in question had an "unallowable purpose".
5.The strike out application is based on the proposition that the Tribunal's jurisdiction is limited to the "conclusion" in the closure notice that, having regard to the proper application of paragraph 19A, the debit to be brought into account is to be £3.7m and not, as claimed, €83m. As the operation of paragraph 13 was not mentioned in the closure notice it could not in law qualify as a "conclusion" falling within the jurisdiction of the Tribunal. The Tribunal's jurisdiction is, so the argument runs, limited to the scope of paragraph 19A of Schedule 9.
6.To give a flavour of the present issue, I need to summarise the background transactions. I have drawn these from the Statements of Case of the parties. But nothing in this decision should be taken as addressing the possible substantive issue in the appeal itself.
7.As of 22 December 2004, Fidex was a wholly owned subsidiary of Fidex Holdings Ltd; Fidex's ultimate parent company was (as noted) BNP Paribas. Fidex's only assets at the time were 22 bonds, maturing between 2005 and 2012. The bonds had all been acquired by Fidex in 1999 and 2000.
8.On 22 December 2004, Swiss Re Financial Products Corporation ("Swiss Re") subscribed for four different classes (classes A, B, C, and D) of redeemable preference shares in Fidex, for a consideration of approximately €84.5m. Each of the four classes of preference shares was referenced to a particular bond owned by Fidex; i.e. the rights attaching to each class of preference share were directly related to the amounts received by Fidex in respect of the reference bond in question. The Class A preference shares were referenced to a bond for €20m issued by Textron Inc, maturing on 14 March 2005. The Class B preference shares were referenced to a bond for €25m issued by IBM Corporation, maturing on 31 March 2005. The Class C preference shares were referenced to a bond for €20m issued by TCNZ Finance Ltd, maturing on 19 April 2005. The Class D preference shares were referenced to a bond for €20m issued by Coco Cola AG, maturing on 4 July 2005.
9.The rights of each class of preference shares were restricted to 95% of the amounts actually received by Fidex in respect of the referenced bond on its maturity.
10.For its accounting period ended 31 December 2004, Fidex drew up accounts in accordance with UK GAAP, i.e. UK Generally Accepted Accounting Practice...
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