Land Securities Plc v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 14 March 2013 |
| Neutral Citation | [2013] UKUT 124 (TCC) |
| Date | 14 March 2013 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2013] UKUT 124 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Roth J, Judge Edward Sadler.
John Gardiner QC and Philip Walford (instructed by Linklaters LLP) appeared for the Appellant.
Julian Ghosh QC and Elizabeth Wilson (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the Respondents.
Corporation tax on capital gains - Scheme to generate a capital loss in reliance on the identification rules for matching a disposal of shares with an acquisition under TCGA 1992, Taxation of Chargeable Gains Act 1992 section 106s. 106 - Value shifting rules in TCGA 1992, Taxation of Chargeable Gains Act 1992 section 30s. 30 - Application of TCGA 1992, Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 9s. 30(9) notwithstanding that the shares were owned at the time of the disposal, where disposal and acquisition form part of the scheme which engages TCGA 1992, Taxation of Chargeable Gains Act 1992 section 30s. 30 - Whether, in the alternative, the disposal and acquisition for the purposes of TCGA 1992, Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 9s. 30(9) is determined by the computational rules required by TCGA 1992, Taxation of Chargeable Gains Act 1992 section 106s. 106 - Davies (HMIT) v Hicks[2005] BTC 331 applied - Application of TCGA 1992, Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 5s. 30(5) to eliminate the capital loss.
The Upper Tribunal has found that the value shifting provisions of TCGA 1992, Taxation of Chargeable Gains Act 1992 section 30s. 30 applied to eliminate a capital loss arising on the sale of shares by a company.
Between March and September 2003, the taxpayer entered into a number of transactions designed to create a capital loss of approximately £200m through the abuse of the bed and breakfast rules at TCGA 1992, Taxation of Chargeable Gains Act 1992 section 106s. 106 (since repealed). The taxpayer claimed relief for the loss for its accounting period ended 31 March 2003 and for later accounting periods. All of those claims were disallowed by HMRC.
The taxpayer appealed to the First-tier Tribunal (Land Securities plcTAX[2011] TC 01442). HMRC cited the Ramsay line of authorities and argued that a purposive construction of the relevant statutory provisions (TCGA 1992, Taxation of Chargeable Gains Act 1992 section 30 section 106ss. 30 and 106) should be adopted in applying those provisions to the relevant transactions. The First-tier Tribunal rejected this argument and found against the taxpayer on the basis of a construction of the relevant provisions advanced by the First-tier Tribunal itself.
The Upper Tribunal set aside the decision of the First-tier Tribunal and found against the taxpayer on the basis of a purposive construction of Taxation of Chargeable Gains Act 1992 section 30s. 30. The taxpayer had acquired the shares giving rise to the loss twice and had disposed of them once. Having looked at Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 9s. 30(9) in isolation, the First-tier Tribunal had concluded that: (1) the application of Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 9s. 30(9) is restricted to bear transactions (i.e. the disposal of an asset where the asset is to be acquired by the disponor only after the date of sale); and (2) whenever there are two acquisitions, Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 9s. 30(9) can only apply to the later acquisition.
Reading Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 9s. 30(9) purposively in the context of Taxation of Chargeable Gains Act 1992 section 30s. 30 as a whole, the Upper Tribunal found that: (1) Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 9s. 30(9) was not restricted to bear transactions; and (2) it could apply to the first or second acquisition depending upon the context. The Upper Tribunal concluded that Taxation of Chargeable Gains Act 1992 section 30s. 30 had effect in this instance by virtue of Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 9s. 30(9).
Where Taxation of Chargeable Gains Act 1992 section 30s. 30 applies, Taxation of Chargeable Gains Act 1992 section 30 subsec-or-para 5s. 30(5) provides that the gain or loss on the disposal should be calculated as if the consideration for the disposal were increased by a "just and reasonable" amount. The taxpayer had argued that the loss should stand as on a future disposal of the shares a taxable capital gain would arise equal to the loss. The Upper Tribunal found that the possible realisation of a gain on the shares was "too remote and contingent to have any weight" and that, having regard to the nature of the transactions undertaken by the taxpayer, elimination of the loss was the just and reasonable result.
In many respects this decision is of historical interest only as s. 106 was repealed in 2006 and, following changes made by FA 2011, Taxation of Chargeable Gains Act 1992 section 30s. 30 no longer applies for the purposes of corporation tax. In addition, the date of disposal preceded the enactment of Taxation of Chargeable Gains Act 1992 section 16As. 16A which would have prevented an allowable loss from arising in this case.
That said, Taxation of Chargeable Gains Act 1992 section 30s. 30 remains on the statute book for individuals and it is interesting that the Upper Tribunal found it just and reasonable to eliminate the loss even though this could give rise to double taxation when the shares are sold.
[1]This is an appeal by Land Securities PLC ("Land Securities") against the decision of the First-tier Tribunal (Judge Nowlan and Sonia Gable) ("the FTT") released on 14 September 2011. The FTT dismissed appeals made by Land Securities against the decision of Her Majesty's Revenue and Customs ("HMRC") to disallow claims made by Land Securities for a capital loss for corporation tax purposes arising from transactions entered into between March and September 2003. Those transactions raised short-term financing for Land Securities, but as the FTT found, the more material benefit of the transactions, which they were designed to achieve, was to create the capital loss in question, which amounted to £202,415,181.
[2]The capital loss was realised in the accounting period of Land Securities ended 31 March 2003. The capital loss was not fully utilised by Land Securities in that accounting period, so that the unutilised portion was carried forward and claimed in later accounting periods. Claims to utilise portions of the capital loss were made by Land Securities for each of those relevant accounting periods. All those claims have been disallowed by HMRC and the appeals made by Land Securities relate to those accounting periods and the respective amounts of capital loss disallowed in each such period. The decision of the FTT was concerned with the principle of whether Land Securities is entitled to the capital loss it has claimed, which is accordingly the issue on this appeal.
[3]The circumstances of the decision are a little unusual in that the FTT, in dismissing the appeal of Land Securities, did so on a ground of statutory construction which was not argued by either of the parties at the hearing, but which was advanced by the FTT itself, and on which the FTT invited the parties to make written submissions after the hearing and before it reached its decision. In reaching its decision, therefore, the FTT rejected not only the case argued by Land Securities, but also the case argued by HMRC. In the proceedings bringing the appeal before this tribunal HMRC entered a Response seeking permission to argue the case they had put to the FTT as well as to argue in support of the ground on which the FTT had based its decision.
[4]The facts relating to the transactions which gave rise to the capital loss in question were not in dispute, and for the purposes of the hearing before the FTT the parties had prepared a Statement of Agreed Facts setting out those transactions.
[5]Questions of motive and purpose on the part of Land Securities and related group companies in entering into the transactions were in dispute, and the FTT heard witness evidence from a senior executive of the Land Securities group in relation to such matters. That evidence, and the FTT's findings based on that evidence, principally relates to HMRC's case (citing the Ramsay line of authorities) that a purposive construction of the relevant statutory provisions should be adopted in applying those provisions to the relevant transactions, as they should be viewed realistically, to the effect that no capital loss arises.
[6]The FTT rejected HMRC's case that, on Ramsay principles, the relevant statutory provisions did not have effect to give rise to the capital loss which Land Securities claimed. As explained below, we reach our decision without resorting to that strand of dispute between the parties. In relation to the findings of the FTT with regard to motive and purpose, it is necessary therefore only to record that the FTT found that the transactions comprised a tax scheme which would not have been entered into but for the hope that a capital loss would thereby arise; but that the transactions provided to the Land Securities group, through the joint venture created by the transactions, short-term financing which it required to make certain property acquisitions.
[7]By way of introduction to the transactions themselves, it is perhaps helpful to mention at the outset that they were structured to fall within the anti-avoidance provisions in the capital gains tax legislation (as those provisions then applied to companies) designed to nullify the effect of so-called "bed and breakfast" transactions - the realisation of a potential loss (or of a potential gain) by the sale of securities followed by their...
To continue reading
Request your trial
-
Adrian Kerrison v The Commissioners for Her Majesty's Revenue & Customs, TC 05800
...time of the disposal. Although it was interpreted more widely than that 15 in the Upper Tribunal decision in Land Securities v HMRC [2013] UKUT 124 (TCC), [2013] STC 1043 that case was distinguishable because the decision was based on the fact that the shares in question had been owned for ......
-
Land Securities PLC v HM Revenue & Customs FTC/11/2012
...[2013] UKUT 0124 (TCC) Appeal number: FTC/11/2012 Corporation tax on capital gains – scheme to generate a capital loss in reliance on the identification rules for matching a disposal of shares with an acquisition under s 106 TCGA 1992 – value shifting rules in s 30 TCGA 1992 – application o......
-
Land Securities PLC v The Commissioners for HM Revenue and Customs
...[2013] UKUT 0124 (TCC) Appeal number: FTC/11/2012 Corporation tax on capital gains – scheme to generate a capital loss in reliance on the identification rules for matching a disposal of shares with an acquisition under s 106 TCGA 1992 – value shifting rules in s 30 TCGA 1992 – application o......
-
Adrian Kerrison and The Commissioners for HM Revenue and Customs
...so that s.30(1) should be read as including a reference to an increase in value. 20. A similar issue arose in Land Securities v HMRC [2013] UKUT 124 (TCC), [2013] STC 1043. In that case, Land Securities acquired the relevant shares in question in about 1969. It disposed of those shares to a......