Gemsupa Ltd and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 03 March 2015 |
| Date | 03 March 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Jonathan Cannan
Mr Julian Ghosh QC and Mr Jonathan Bremner of counsel instructed by Mr William Marshall Smith (in-house solicitor) appeared for the Appellant
Ms Aparna Nathan of counsel instructed by HM Revenue & Customs Solicitor's Office appeared for the Respondents
Corporation tax Chargeable gains Group relief Taxation of Chargeable Gains Act 1992 (TCGA 1992), s. 170, 171 Tax avoidance scheme Ramsay principle Purposive construction of the group relief provisions Whether the transactions fell within the group relief provisions Appeal allowed.
The First-tier Tribunal allowed the taxpayer companies' appeals against assessments to corporation tax on chargeable gains on the disposal of real estate. The disposals were made between companies that were members of the same group (within Taxation of Chargeable Gains Act 1992 (TCGA 1992), s. 170), and that conclusion held good notwithstanding those disposals were undertaken as part of tax avoidance arrangements involving the grant of put and call options, and subsequent exercise of the put option, occurring over a two week period.
Two companies (G and W) owned by family trusts entered into identical tax avoidance arrangements, to sell real estate to a listed property group without crystallising tax on gains. The scheme in questioned was disclosed under the DOTAS regime.
The steps taken (in the case of G) were essentially as follows:
On 15/12/2006:
C, the intending purchaser of G's real estate and a subsidiary of the listed property group, lent some 61m to a new subsidiary company (C Sub); C Sub in turn subscribed that amount for shares in G so as to create a group structure under TCGA 1992, s. 170 (and giving C Sub the right to 51% of distributable income, and of assets on a winding up, of G);
C and G1 (another company owned by the family trusts above) entered into non-coterminous put and call options over the shares in C Sub; C had the right to put such shares to G1 during a one month window from 24/12/2006, and G1 had the right to call and acquire such shares during a one month window from 1/02/2007 (in each case the option exercise price was 1,000).
On 22/12/2006:
G agreed to sell real estate to C for some 67m, with the consideration left outstanding;
C, G, C Sub and G1 entered into an Offset Deed, under which the purchase consideration was to be satisfied [or presumably substantially satisfied] by treating the debt owed by C Sub to C as owed to G. The Offset Deed only took effect if the options over the shares in C Sub were exercised;
Completion of the transfer of the real estate, from G to C, took place.
On 28 and 29/12/2006:
C exercised its put option, and G1 acquired the shares in C Sub.
On 2 and 8/01/2007
G repurchased, from C Sub, all the shares that C Sub had previously subscribed, with the consideration being satisfied by a deemed part repayment of the debt now owed by C Sub to G.
The overall end result of these transactions, in substance, was:
C, the listed property group subsidiary, had the real estate;
G had the sale proceeds;
G1 and C Sub (now effectively shell companies), and G, were wholly owned by the family trusts.
Evidence was given on behalf of G that the tax saving was essential to the transaction proceeding (and an indemnity was given by the listed property group parent against the tax planning being ineffective). In addition, that if the real estate sale had not taken place, the options were available to unwind the structure, but that in any event the family trusts could have lived with the structure in the absence of an exercise of options in that case G would effectively be a joint venture going forward, and in broad terms (it was submitted) the family trusts had, on 15/12/2006, swapped their 100% interest in G for a 49% interest in something approximately double the value following the share subscription.
The Tribunal judge said that G's case was essentially that Income and Corporation Taxes Act 1988 (ICTA 1988), Sch. 18 was specifically modified for capital gains purposes, and no regard is paid to the existence of options; and that the Ramsay principle could not be used to construe TCGA 1992, s. 170 so as to ignore actual shareholdings and/or treat the options as having been exercised.
HMRC's case, the judge said, was that the essential question was whether there was a group for capital gains purposes at the time C Sub subscribed for shares in G; that in seeking to apply the Ramsay principle, the purpose of the group relief provisions was to recognise only groups which in a real sense form part of a commercial and economic whole; and in light of such purpose, and given the existence of the options, no significance should be attached to the shares issued to C Sub.
It was important (or particularly important) to note that ICTA 1988, Sch. 18, paras 5(3) and 5B were disapplied for purposes of capital gains by TCGA 1992, s. 170(8). This was because Capital gains tax is looking at a particular point in time, the date of disposal. Parliament had determined that for capital gains purposes the focus is on the rights given by the articles, and not in arrangements outside the articles which affect other accounting periods.
The judge was satisfied that, as at 15/12/2006, the property transaction was very likely to go ahead, but nothing more; but that it was a practical certainty that the put or call options would be exercised. The transaction in issue said to give rise to the chargeable gain was the disposal of the real estate on 22/12/2006. In this regard, the corporate transactions (of 15/12/2006) and the real estate disposal could not be treated as part of a composite transaction because the disposal was not pre-ordained at the time of the corporate transactions (only the corporate transactions, including the exercise of the options, could be treated as a composite transaction because the option exercise was pre-ordained).
But HMRC's case was that the existence of the options and the fact that their exercise was pre-ordained meant that the corporate transactions did not fall within a purposive construction of the group relief provisions. However, in light of the Bupa Insurance Ltd v R & C Commrs TAX[2014] BTC 519 and J Sainsbury plc v O'Connor (HMIT) TAX[1991] BTC 181 cases, the judge could not say that group relationships, intended to be limited in time and established only for the purposes of obtaining the relief, are outside the purpose of the provisions. He did not accept HMRC's submission that group relief is only available where there is some form of commercial economic unity above and beyond the conditions set out in the literal words of Sch. 18.
The corporate transactions did answer to the statutory description of a group for group relief purposes as at 15/12/2006. If G and C were members of a group on that date, they were also members of the group on 22/12/2006, the date of disposal of the real estate. The taxpayer companies' appeals therefore fell to be allowed.
There have been one or two cases recently where Tribunals have recognised legislation as sufficiently detailed or prescriptive to preclude a Ramsay approach.
Does the reasoning in this decision give scope for HMRC to take further? Perhaps there is a question over the reliance placed on the Sainsbury and Bupa cases (on the basis that Sainsbury was a rather different fact pattern and associated analysis, whilst in Bupa HMRC did not argue (or were not allowed by the Upper Tribunal to argue) for the purposive approach though true that the Tribunal in Bupa did not necessarily see that as making a difference to the result). Also, the focus does seem to have been primarily on whether the group relationship existed on 15/12/2006, rather than on the date of the relevant disposal on 22/12/2006 (or even, alternatively, on whether as at 15/12/2006 the group relationship would nevertheless still cease at the point of any entry into the subsequent real estate transaction).
[1] The Appellants (Gemsupa and Wilmslow, together the Companies) owned freehold and long leasehold investment properties (the Properties) known as Centre Retail Park, Oldham and Manchester Road Retail Park, Hyde. In 2006 the Companies negotiated and completed a sale of the Properties to British Land. The total consideration for the disposal was 126.2m.
[2] The sale of the Properties involved all parties implementing a tax avoidance scheme whereby the Companies sought to avoid any corporation tax on chargeable gains on the disposal. In very broad terms arrangements were put in place whereby the Companies contend that the disposal of assets took place whilst they were members of the British Land group of companies and therefore at a no gain / no loss consideration for capital gains purposes. The purchaser was a company called Cleartest Limited which was a member of the British Land group.
[3] In their corporation tax returns for the periods ending 30 June 2007 the Companies declared that no corporation tax was payable in relation to the disposals. They disclosed the scheme under the Disclosure of Tax Avoidance Schemes provisions.
[4] On 4 March 2009 the Respondents (HMRC) opened enquiries into the Companies' corporation tax returns. Those enquiries resulted in closure notices which amended the returns to show corporation tax on chargeable gains of 18,584,845 for Gemsupa and 10,155,348 for Wilmslow.
[5] The parties were agreed that the issue for determination on this appeal is as follows:
Whether, for the purposes of corporation tax on chargeable gains, on a proper construction of the intra group asset transfer provisions of s171 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) and in the light of all the facts, the disposal by each of the Appellants was a transaction to which s171 TCGA 1992 applied and, in particular, whether in the light of all the facts and on a proper construction of the interpretation provisions...
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