Inmarsat Global Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lady Justice Whipple,Lord Justice Underhill |
| Judgment Date | 28 July 2022 |
| Neutral Citation | [2022] EWCA Civ 1076 |
| Docket Number | Case No: CA-2021-000620 |
| Court | Court of Appeal (Civil Division) |
[2022] EWCA Civ 1076
Lord Justice Underhill
(Vice-President of the Court of Appeal (Civil Division))
Lord Justice Newey
and
Lady Justice Whipple
Case No: CA-2021-000620
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
Mr Justice Adam Johnson and Upper Tribunal Judge Jonathan Richards
Royal Courts of Justice
Strand, London, WC2A 2LL
Kevin Prosser QC and Barbara Belgrano (instructed by Stephenson Harwood LLP) for the Appellant
Michael Gibbon QC, Richard Vallat QC and Ronan Magee (instructed by The General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 21 and 22 June 2022
Approved Judgment
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 14:00 on 28 July 2022
What is at issue in these proceedings is whether the appellant, Inmarsat Global Limited (“Inmarsat”), is entitled to capital allowances on costs incurred by the International Maritime Satellite Organisation (“IMSO”), to whose trade Inmarsat has succeeded, on the launch of certain satellites. The case raises questions as to the interpretation and application of sections 61(4) and 78 of the Capital Allowances Act 1990 (“the 1990 Act”) and how those provisions interact.
Facts
IMSO was established by the Convention on the International Maritime Satellite Organization (INMARSAT) (“the Convention”) which was entered into on 3 September 1976 and came into force on 16 July 1979. IMSO was headquartered in the United Kingdom and was a body corporate for United Kingdom tax purposes, but by the Inmarsat (Immunities and Privileges) Order 1980 it was exempt from taxes on income and gains.
The present proceedings concern three “second generation” (or “I-2”) and three “third generation” (or “I-3”) satellites which IMSO commissioned and launched in the course of its trade of operating a telecommunications satellite system. As the Upper Tribunal (“the UT”) explained in paragraph 6 of its decision, the same basic contractual structure applied in relation to all six satellites:
“(1) IMSO entered into agreements (the ‘Construction Contracts’) with a satellite construction company (British Aerospace Plc in the case of the I-2 Satellites and General Electric Technical Services Company Inc in the case of the I-3 Satellites) for the construction and sale of the Satellites.
(2) However, IMSO never took delivery of the Satellites pursuant to those contracts. Instead financial lessors (‘Lessors’) ([North Sea Marine Leasing Company (‘NSM’)] in the case of the I-2 Satellites and [Abbey National December Leasing (3) Limited (‘Abbey’)] in the case of the I-3 Satellites) obtained, by means of novation, the benefit and burden of relevant aspects of the Construction Contracts so that the Lessors obtained the right to delivery of the Satellites and the obligation to pay for them.
(3) The Lessors agreed to lease the Satellites to [IMSO] in return for periodic rental payments (the ‘Leases’). The intentional ignition of any first stage engine of the launch vehicle would trigger the commencement of the term of the Leases.
(4) The Satellites were entirely useless for their intended purposes until they were launched into orbit …. Accordingly, IMSO entered into contracts for the launch of the Satellites with various parties. IMSO paid the launch costs under those contracts.”
The launch contracts in respect of the I-2 satellites were entered into before the contract for their construction was novated in favour of NSM. In contrast, the launch contracts relating to the I-3 satellites were concluded only after Abbey had acquired the benefit of the construction contract and agreed to lease the satellites to IMSO.
The UT said in paragraph 8 of its decision:
“It is reasonable to infer that at some point after it entered into its final launch contract for the I-2 Satellites, on 31 March 1988, IMSO realised that its chosen structure would be inefficient from a tax perspective. IMSO, as a tax-exempt body, could not benefit from the significant capital allowances that capital expenditure on the Satellites would attract. By contrast, if that capital expenditure was incurred by Lessors, who were subject to tax, the Lessors could set capital allowances on the Satellites against their other tax liabilities or those of their respective groups with the tax benefit of those capital allowances shared with IMSO in the form of reduced lease rental payments. Accordingly, the decision was taken to novate the Construction Contracts to the Lessors, which would enable the Lessors to claim capital allowances on the costs of acquiring the I-2 Satellites and to enter into the Leases. The result of this change of course was that, at the time the Lessors became party to the arrangements relating to the I-2 Satellites, IMSO was already party to launch contracts.”
The I-2 satellites were launched on dates between October 1990 and December 1991. The I-3 satellites were launched on various dates in 1996.
NSM and Abbey claimed capital allowances on the expenditure they incurred in acquiring the satellites for their (actual or deemed) leasing trades. No such allowances were, however, claimed in respect of the launch costs, those costs having been incurred and paid by IMSO and forming no part of the leasing arrangements.
In 1999, Inmarsat acquired the business and assets of IMSO's trade in exchange for shares in Inmarsat. As part of these arrangements, Inmarsat gained the benefit and burden of the satellite leases pursuant to novation agreements. It is common ground that Inmarsat thereby succeeded to IMSO's trade for the purposes of section 78 of the 1990 Act.
Following the succession, Inmarsat sought to claim writing-down allowances in relation to the launch costs which IMSO had incurred. The parties having been unable to agree on the claims, the question whether Inmarsat is entitled to capital allowances in respect of the satellites was eventually the subject of a reference to the First-tier Tribunal (“the FTT”). The FTT (Judge Kevin Poole) answered the question in favour of HM Revenue and Customs (“HMRC”), and the UT (Adam Johnson J and Upper Tribunal Judge Jonathan Richards) dismissed an appeal by Inmarsat. Inmarsat now, however, challenges the decisions of the FTT and UT in this Court.
The statutory framework
The statutory regime governing capital allowances is nowadays embodied in the Capital Allowances Act 2001. For the purposes of this judgment, however, I shall take the law to be as it was when IMSO's business was transferred to Inmarsat in 1999. At that stage, the law relating to capital allowances was primarily to be found in the 1990 Act.
Under the 1990 Act, a person who has incurred capital expenditure on machinery or plant for the purposes of their trade can potentially qualify for capital allowances. The allowances can be of two kinds: first-year allowances and writing-down allowances. Provision for the latter is made in section 24 of the 1990 Act, which is in chapter I of part II of the Act. Section 24 establishes a regime under which a person can become entitled to an allowance equal to 25% of the difference between “qualifying expenditure” and any relevant “disposal value”. So far as relevant, section 24 provides:
“ 24. Writing-down allowances and balancing adjustments.
(1) Subject to the provisions of this Part, where—
(a) a person carrying on a trade has incurred capital expenditure on the provision of machinery or plant wholly and exclusively for the purposes of the trade, and
(b) in consequence of his incurring that expenditure, the machinery or plant belongs or has belonged to him,
allowances and charges shall be made to and on him in accordance with the following provisions of this section.
…
(2) … for any chargeable period for which a person within subsection (1) above has qualifying expenditure which exceeds any disposal value to be brought into account in accordance with subsection (6) below, there shall be made to him—
(a) unless the period is the chargeable period related to the permanent discontinuance of the trade, an allowance (‘a writing-down allowance’) equal to—
(i) 25 per cent of the excess, or
(ii) …
(b) if the period is the chargeable period related to the permanent discontinuance of the trade, an allowance (‘a balancing allowance’) equal to the whole of the excess.
…
(5) For any chargeable period for which a person's qualifying expenditure is less than the disposal value which he is to bring into account, there shall be made on him a charge (‘a balancing charge’), and the amount on which the charge is made shall be an amount equal to the difference.
(6) … the disposal value to be brought into account by a person for any chargeable period is the disposal value of all machinery or plant—
(a) on the provision of which for the purposes of the trade he has incurred capital expenditure; and
(b) which belongs to him at some time in the chargeable period; and
(c) in respect of which, in the chargeable period, one of the following events occurs, namely—
(i) the machinery or plant ceases to belong to him;
(ii) he loses possession of the machinery or plant in circumstances where it is reasonable to assume that the loss is permanent or, in the case of machinery or plant which was in use for mineral exploration and access, he abandons the machinery or plant at the site where it was in use for that purpose;
(iii) the machinery or plant ceases to exist as such (as a result of destruction, dismantling or otherwise);
(iv) the machinery or plant begins to be used wholly or partly for purposes...
To continue reading
Request your trial
-
Urenco Chemplants Ltd and Another v R & C Commissioners
...a further review of these authorities has recently been carried out by this court on an appeal from the UT in the Inmarsat case: see [2022] EWCA Civ 1076, STC 1246, at [61] to [63] (Newey 95 In the light of these principles, the UT considered that the FTT must have misdirected itself in la......
-
(1) GUNFLEET SANDS LIMITED (2) GUNFLEET SANDS II LIMITED (3) WALNEY (UK) OFFSHORE WINDFARMS LIMITED (4) ORSTED WEST OF DUDDON SANDS (UK) LIMITED v THE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMS [2023] UKUT 00260 (TCC)
...taxpayers rely on various other authorities to show in essence a wider test. We do not agree they do. 144. Inmarsat Global Ltd v HMRC [2022] EWCA Civ 1076 concerned the extent to which the taxpayer was entitled to capital allowances on satellite launch costs incurred by an international org......
-
UK Tax Round Up
...Capital Allowances on Succession to Business The Court of Appeal has published its decision in the case of Inmarsat Global Ltd v HMRC [2022] EWCA Civ 1076. By way of background, IMSO was an international organisation established by the Convention on the International Maritime Satellite Orga......