HMRC v First Nationwide
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Warren, President |
| Judgment Date | 18 April 2011 |
| Neutral Citation | [2011] UKUT 174 (TCC) |
| Respondent | FIRST NATIONWIDE |
| Appellant | HER MAJESTY’S REVENUE AND CUSTOMS |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Appeal Number | FTC/33/2010 |
FTC/33/2010
[2011] UKUT 174 (TCC)
Stocklending agreement – deduction for management expenses in respect of
manufactured dividends – para 1(1), Sch 23A ICTA – Income Tax
(Manufactured Overseas Dividends) Regulations 1993 – whether dividends
paid by a Cayman Islands company out of share premium account are
“dividends” and “overseas dividends” - yes – ss 737A and 730A ICTA –
whether a sale of preference shares and a subscription for preference shares
is a sale and repurchase of securities – no – appeal dismissed
BEFORE THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
B E T W E E N:
THE COMMISSIONERS FOR
HER MAJESTY’S REVENUE AND CUSTOMS Appellants
and
FIRST NATIONWIDE Respondent
TRIBUNAL: Mr Justice Warren, President
Judge Edward Sadler
Sitting in public in London on 23 – 25 February 2011
Malcolm Gammie QC, instructed by the General Counsel and Solicitor to HM
Revenue and Customs, for the Appellants
John Gardiner QC and Philip Walford, instructed by Slaughter and May, for
the Respondent
© CROWN COPYRIGHT 2011
Introduction
1. The central issues (“the Dividend Issues”) in this appeal are whether each of two
distributions made by a company registered under the law of the Cayman Islands
and resident there, Blueborder Cayman Ltd (“Blueborder”), to Anglo Irish Bank
Corporation plc (“Anglo Irish Bank”) was (i) a “dividend” and (ii) an “overseas
dividend” for the purposes of the manufactured payments legislation found in
Schedule 23A Income and Corporation Taxes Act 1988 (“ICTA”) and the Income
Tax (Manufactured Overseas Dividends) Regulations 1993. We shall refer to
these provisions as “the manufactured payments provisions”. If they were,
then corresponding payments, the manufactured dividends, made by the Appellant
(“First Nationwide”) (a wholly owned investment company subsidiary of
Nationwide Building Society (“the Society”)) to the London branch of ABN
AMRO Bank nv (“ABN AMRO”) are deductible by First Nationwide as a
management expense; if they were not, then the corresponding payments are not.
2. There is a secondary issue (“the Repo Issue”) in relation to sections 737A and
730A ICTA (as extended by subsections 737B(5) and 730B(2)(a)). It is whether
the statutory language (“buying similar securities”) in the context of the repo
provisions includes subscribing for new shares as well as buying shares already in
issue.
3. In its self-assessment to corporation tax for the accounting period ended on 31
March 2004, First Nationwide had included a deduction of £51m for expenses of
management (being the payment of manufactured dividends paid to ABN AMRO
pursuant to a stock lending agreement); HMRC made an amendment to the
assessment on 23 April 2008 excluding that deduction. First Nationwide appealed
to the Tax Chamber of the First-tier Tribunal. The appeal was heard by Judge
Roger Berner (“the Judge”) who gave a written decision (“the Decision”) which
was released on 12 January 2010. He held, in relation to the Dividend Issues, that
each of the distributions was a “dividend” and an “overseas dividend”. He also
held, in relation to the Repo Issue, that “buying similar securities” did not include
subscribing for new shares. HMRC now appeals with permission from the Judge.
The Decision can be found on the Tribunal website at
http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=4702
The Facts - agreed
4. The main facts were not in dispute before the Judge and were set out in an agreed
statement of facts and issues which he recorded in paragraph 3 of the Decision.
For present purposes, we can adopt a slightly shorter summary.
5. Blueborder was a company incorporated and resident in the Cayman Islands. On
24 September 2003 Blueborder’s authorised share capital was increased to
£110,101, divided into 10,001 Ordinary Shares of a nominal value of £1 each and
100,100 Redeemable Preference Shares with a nominal value of £1 each (“RPS”).
On the same date it issued to its parent company, Blauwzoom nv (“Blauwzoom”),
1,050 Ordinary Shares and 50,050 RPS (the “First Issued Preference Shares”) in
each case at a premium of £999 each (ie an issue price of £1,000 per share).
Blueborder accordingly raised £51,100,000 for the issue of its shares of which
£51,100 represented the nominal value of the shares and £51,048,900 was share
premium. The First Issued Preference Shares were overseas securities as defined
by paragraph 1(1) Schedule 23A ICTA.
6. The dividend rights attaching to the First Issued Preference Shares under
Blueborder’s Articles, were:
a. The right to a dividend out of share premium of £509.49051 per share
(£25,500,000 in total) on 29 December 2003 (the “First Preference
Dividend”);
b. The right to a dividend out of share premium of £509.49051 per RPS
(£25,500,000 in total) on 29 March 2004 (the “Second Preference
Dividend” which together with the First Preference Dividend we refer to
as “the Preference Dividends”);
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The Commissioners for HM Revenue and Customs v First Nationwide
...[2011] UKUT 174 (TCC) Stocklending agreement – deduction for management expenses in respect of manufactured dividends – para 1(1), Sch 23A ICTA – Income Tax (Manufactured Overseas Dividends) Regulations 1993 – whether dividends paid by a Cayman Islands company out of share premium account a......