Iliffe News and Media Ltd and Others
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 November 2012 |
| Neutral Citation | [2012] UKFTT 696 (TC) |
| Date | 01 November 2012 |
| Court | First Tier Tribunal (Tax Chamber) |
[2012] UKFTT 696 (TC)
Judge John Walters QC, Lynneth Salisbury
Daniel Alexander QC, Julian Ghosh QC, Mary Stokes and Elizabeth Wilson, instructed by Reynolds Porter Chamberlain LLP, appeared for the Appellants
Philip Jones QC and David Yates, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Corporation tax - purported assignments of unregistered trade marks in gross (newspaper mastheads) by subsidiaries to their parent company - whether valid under common law - held no - alternatively on the basis that they were valid whether certain of them were unlawful distributions pursuant to CA 1985, s. 263 and 270(2) - held no - whether purported licences-back of the trade marks by the parent company to the subsidiaries were for a licence fee in excess of market value - found yes - and whether the licence fees were unlawful distributions of capital by the subsidiaries - Progress Property Company Ltd v Moorgarth Group Ltd [2010] UKSC 55, [2011] 1 WLR 1 considered - held no - whether the licence fees were capital receipts or income receipts in the hands of the parent company - held capital - whether FA 2002, Finance Act 2002 schedule 29Sch. 29 applies to the licences - held no, because there was no post-commencement expenditure on their creation - whether the purported assignments and licences-back were tax avoidance arrangements within FA 2002, Finance Act 2002 schedule 29para. 111, Sch. 29 - held yes - whether the one of the main purposes for which the subsidiaries and parent entered into loan relationships to facilitate the transactions was a tax avoidance purpose within FA 1996, Finance Act 1996 schedule 9para. 13, Sch. 9 - held yes - whether any debit under FA 1996, Finance Act 1996 part IV chapter IIPt. IV, Ch. II, was attributable to the tax avoidance purpose - held no - appeals allowed in part
The taxpayer subsidiary companies' purported assignments of unregistered trade marks ("UTMs") in gross to a taxpayer parent company were void for mistake as to the assignability of the subject matter of the purported assignments. The exploitation of the UTMs and of the newspapers to which they related was not an exercise, in which all component companies of the taxpayer parent company were engaged in the course of trade. On the basis that the assignments were valid, those assignments were lawful distributions under the Companies Act 1985 ("CA 1985"), s. 263 and 270(2) as the UTMs assigned were not general assets and were not carried in the taxpayers' respective books. The licence fees paid in consideration of the licences-back of the UTMs were in excess of market value since the value of the licences would be unlikely to be significantly higher than the cost of recreating the UTMs concerned. However, as the licence fees actually paid were not reasonably large or manifestly beyond what was possibly justifiable, the licences were not unlawful distributions of capital. The licence fees were capital receipts on part-disposals of capital assets as the licence agreement between the taxpayers regarded the licences as five-year licences. As there was no post commencement expenditure on the creation of the licences, Finance Act 2002 ("FA 2002"), Finance Act 2002 schedule 29Sch. 29 did not apply. The Tribunal also decided that the purported assignments and licences-back were tax avoidance arrangements under FA 2002, Finance Act 2002 schedule 29Sch. 29, para. 111(2)(b). The assignments sought to enable the taxpayer parent company to avoid having to bring a credit into account under FA 2002, Finance Act 2002 schedule 29Sch. 29. At the same time, they sought an entitlement for the subsidiaries to claim debits for tax purposes. Thus, the main purpose for which the taxpayers entered into loan relationships to facilitate the transactions was also a tax avoidance purpose within FA 1996, Finance Act 1996 schedule 9Sch. 9, para. 13. However, as the debits were all attributable to the non-tax commercial purpose of acquiring the licences, no amount of the debits under Finance Act 1996 ("FA 1996"), Finance Act 1996 part IV chapter IIPt. IV, Ch. II was attributable to the tax avoidance purpose.
The taxpayer companies appealed against HMRC's closure notices in connection with the taxpayers' transactions in 2003 and 2005.
The first taxpayer ("INML") was an intermediate holding company of a newspaper group. The second to fifth taxpayers ("HENL", "SNL", "CNL" and "LSN", respectively; "subsidiaries", collectively) were subsidiaries of INML in the relevant periods. They carried on business as regional newspaper publishing companies.
The appeals concerned transactions carried out in 2003 and 2005. The taxpayers contended that various unregistered trademarks ("UTMs"), being titles of local newspapers and other publications, referred to as "mastheads", were assigned from the subsidiaries to INML, and were then licensed back to the respective subsidiaries by INML for consideration of various sums payable as lump sums totalling 51,400,000.
On 26 September 2003, HENL, SNL and CNL each entered into a separate trade mark assignment agreement ("TMA"), a separate trade mark licence agreement ("TMLA"), and a separate loan agreement ("LA") in each case with INML. The TMAs sought to assign to INML unregistered trademarks ("UTMs") which were the mastheads of various regional newspapers. INML sought to license back the UTMs assigned to it by the respective subsidiaries for a period of five years in return for premiums. Under the LAs, INML made loans to respective subsidiaries for a five-year term, with interest being payable at three per cent above the base rate set by Lloyds TSB plc.
In April 2004, CNL had acquired 100 per cent of the share capital in a company ("AML"). In April 2005, CNL and INML entered into a TMA and an addendum to the previously entered TMLA. Under the TMA, CNL sought to assign to INML the various UTMs which it had acquired from AML. Under the CNL addendum, CNL agreed to pay INML for the grant of a trade mark licence of the various UTMs which had been sought to be assigned by CNL to INML for approximately four years and six months.
In August 2005, INML acquired LSN from a third party. LSN and INML entered into a TMA, a TMLA and an LA similar to those entered into by INML with the other subsidiaries.
(2) Whether the subsidiaries' assignments of the UTMs to INML were valid.
(3) On the basis that the assignments were valid, whether the assignments were unlawful distributions which INML held on trust for the assigning subsidiaries.
(4) Whether the subsidiaries' license fees were in excess of market value and an unlawful distribution out of capital by the subsidiaries to INML.
(5) Whether the licence fees comprised a capital receipt.
(6) Whether FA 2002, Finance Act 2002 schedule 29Sch. 29 applied to the licences.
(7) Whether the purported assignments and licences back were tax avoidance arrangements within FA 2002, Finance Act 2002 schedule 29Sch. 29, para. 111.
(8) Whether any debit under FA 1996, Finance Act 1996 part IV chapter IIPt. IV, Ch. II was attributable to the tax avoidance purpose.
Held, allowing the taxpayers' appeal in part:
In respect of the first issue, modern law has liberalised dealings in registered trademarks, with the protection which the registration rules give to the public. However, Parliament has intentionally not reformed the law on the assignment of UTMs in the sense of liberalising it, perhaps with the object of promoting the use of the registration arrangements. By the Trade Marks Act 1994, Parliament has actually made it more restrictive than it had been by restoring the common law rule without the exceptions which the Trade Marks Act 1938 had provided. There is no evidence of a legislative intention to liberalise or relax the common law rule preventing the assignment of UTMs in gross, that is, without the business and goodwill to which it relates.
Here, the UTMs in issue, which were originally held by the subsidiaries, were not used or intended for use to indicate that the newspapers in question were newspapers originating from INML. Quite the contrary, they were specific mastheads indicating a local newspaper whose particular quality or "selling point" was that it was a local newspaper locally managed and locally produced. The exploitation of the UTMs and of the newspapers to which they related was not an exercise in which all component companies of INML group were engaged in the course of trade. Thus, the purported assignments of UTMs by the subsidiaries to INML were assignments in gross and were void for mistake as to the assignability of the subject matter of the purported assignments. It followed that no UTM had been validly transferred to INML or licensed back by INML.
In respect of the second issue, the Companies Act 1985 ("CA 1985"), s. 263 provides that a company shall not make a distribution, except out of profits available for the purpose, which are its accumulated realised profits, less its accumulated realised losses. Under CA 1985, s. 270(2), the amount of a distribution must be measured by reference to the value of the distributed asset as stated in the company's last annual accounts. If a distributed asset does not appear in those accounts, the amount of the distribution is zero. If the asset is stated in the company's last annual accounts, the amount of the distribution must be measured by reference to the book value of the asset, and not its market value.
Here, the Tribunal held that on the basis that the assignments were valid, they were lawful distributions under CA 1985, s. 263 and 270(2). The UTMs assigned by the subsidiaries to INML were not carried in their respective books because they did not qualify for recognition as being internally generated assets. It followed that INML did not hold the UTMs which were the subject of the 2003 assignments on trust for the assigning...
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