Project Blue Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 July 2013 |
| Neutral Citation | [2013] UKFTT 378 (TC) |
| Date | 05 July 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 378 (TC)
Judge Guy Brannan, Ruth Watts Davies, MHCIMA FCIPD.
Roger Thomas, Counsel, instructed by Clifford Chance LLP appeared for the Appellant
Malcolm Gammie CBE QC and Hui Ling McCarthy, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Stamp duty land tax ("SDLT") - sale of property with subsequent Shari'a-compliant sub-sale and lease-back - no SDLT paid pursuant to Finance Act 2003 ("FA 2003"),Finance Act 2003 section 45 section 71Ass. 45(3) and 71A - application of FA 2003, Finance Act 2003 section 75As. 75A - anti-avoidance provision - approach to interpretation of Finance Act 2003 section 75As. 75A - identification of "V" and "P" within FA 2003, Finance Act 2003 section 75A subsec-or-para 1s. 75A(1) - "scheme transactions" - meaning of "involved in connection with" - calculation of SDLT under Finance Act 2003 section 75A subsec-or-para 5s. 75A(5) - whether indirect discrimination contrary to European Convention on Human Rights, art. 14 - HMRC arguing that tax undercharged in amendment by closure notice to SDLT return: onus of proof - FA 2003, Finance Act 2003 schedule 10 subsec-or-para 42Sch. 10, para. 42 - whether correct return amended - appeal dismissed - SDLT undercharged in amendment to return.
The First-tier Tribunal dismissed a taxpayer company's appeal against HMRC's amendment to its land transaction return, adjusting the amount of SDLT pursuant to FA 2003,Finance Act 2003 section 75As. 75A in respect of the sale of barracks with subsequent Shari'a-compliant sub-sale and lease-back. The taxpayer's notification to HMRC under the SDLT Tax Avoidance Schemes (Prescribed Descriptions of Arrangements) Regulations(SI 2005/1868) ("SDLT Regulations 2005") showed that it was well aware that the structure of the relevant transactions involved an SDLT advantage and that avoidance of SDLT might have been a factor for choosing such structure. For FA 2003, Finance Act 2003 section 75As. 75A purposes, the taxpayer was "P" - the one who acquired the disposed chargeable interest and avoided SDLT - because it acquired the property with the benefit of finance provided by a financier. Thus, the seller's disposal of the property and the financier's grant of the lease to the taxpayer constituted the disposal and acquisition envisaged by FA 2003, Finance Act 2003 section 75A subsec-or-para 1s. 75A(1)(a). The taxpayer's subsequent sub-sale and lease-back of the property were transactions "involved in connection with" the taxpayer's acquisition of the leasehold interest from the seller within FA 2003, Finance Act 2003 section 75A subsec-or-para 1s. 75A(1)(b) since those transactions could not have occurred without the seller's disposal. Pursuant to FA 2003, Finance Act 2003 section 75A subsec-or-para 5s. 75A(5), SDLT was chargeable in reference to the amount of consideration received by the taxpayer from the financier being the highest consideration given under the scheme transactions. The taxpayer had not shown that it suffered discrimination on the basis of religion contrary to European Convention on Human Rights, art. 14. It had not established that it entered into the Shari'a-compliant financing for religious reasons, where it suffered more SDLT than it would have done had it financed its acquisition by conventional loan finance. Finally, the Tribunal held that HMRC's amendment of the return in respect of seller's actual transfer of the freehold to the taxpayer was correct since FA 2003, Finance Act 2003 schedule 10 subsec-or-para 10Sch. 10, para. 10 had not precluded an amendment to a return in respect of the actual transfer in accordance with the provisions of Finance Act 2003 section 75As. 75A which applied to a notional transfer.
The taxpayer was a special purpose acquisition subsidiary of a group of companies brought into existence for the purpose of acquiring a British army barracks ("the property") from the Ministry of Defence ("the MOD"). The taxpayer bought the freehold of the property from the MOD consisting of the following steps: (1) the taxpayer contracted to purchase the freehold of the property from the MOD on 5 April 2007; (2) the taxpayer sub-sold the freehold of the property to a Qatari financial institution ("MAR"); (3) MAR agreed to lease the property back to the taxpayer for the finance period; (4) MAR and the taxpayer entered into put and call options, respectively, requiring or entitling the taxpayer to repurchase the freehold of the property at the end of the finance period on 31 January 2008; (5) the MOD conveyed the freehold of the property to the taxpayer; (6) the taxpayer then conveyed the freehold in the property to MAR; and (7) MAR leased the property back to the taxpayer for the required finance period.
On 1 February 2008, the taxpayer's adviser submitted a notification to HMRC entitled, "Disclosure of Avoidance Scheme" in accordance with SDLT Regulations 2005. The notification stated that no SDLT was payable by the taxpayer on the sale from the MOD by virtue of sub-sale relief under FA 2003,Finance Act 2003 section 45s. 45(3). It went on saying that no SDLT was payable by MAR on the sale of the property from the taxpayer to MAR by virtue of alternative property finance relief under FA 2003, Finance Act 2003 section 71A subsec-or-para 2s. 71A(2).
HMRC opened an enquiry into the taxpayer's SDLT return in respect of the relevant transactions. The enquiry was concluded by a closure notice contained in a letter dated 13 July 2011. The closure notice amended the taxpayer's return which related to the completion on 31 January 2008 of the contract between the MOD and the taxpayer. By that amendment, HMRC adjusted the amount of SDLT due from the taxpayer from 0 to 38.36m and later to 50m.
The taxpayer contended that HMRC erred in amending the relevant return because the return related to the land transaction between the MOD and the taxpayer which was disregarded under the tail piece of FA 2003,Finance Act 2003 section 45s. 45(3). In any event, FA 2003, Finance Act 2003 section 75As. 75A, which was an anti-avoidance provision, should not apply to the relevant transactions since they were wholly commercial. If FA 2003, Finance Act 2003 section 75As. 75A applied, MAR was the more logical candidate than the taxpayer for the role of "P" - the person who acquired the disposed chargeable interest and avoided SDLT. That was because it was appropriate to apply FA 2003, Finance Act 2003 section 75As. 75A to the earliest land transaction which was MAR's acquisition of the freehold interest in the property. However, if the taxpayer was "P" for FA 2003, Finance Act 2003 section 75As. 75A purposes, that provision was disapplied by FA 2003, Finance Act 2003 section 75A subsec-or-para 7s. 75A(7). The SDLT that would have been payable on the purchase of the freehold by MAR from the taxpayer would have been 50m. In addition, the taxpayer would have paid SDLT on the present value of the rents reserved by the lease granted by MAR of 1,640,799. Thus, it was only by reason of the application of FA 2003, Finance Act 2003 section 71As. 71A to both of those transactions that the condition in FA 2003, Finance Act 2003 section 75A subsec-or-para 1s. 75A(1)(c) was satisfied.
HMRC contended that for the purposes of FA 2003,Finance Act 2003 section 75As. 75A, the MOD was "V" and the taxpayer was "P". That was with the result that there was a notional land transaction for the purposes of FA 2003, Finance Act 2003 part 4Pt. 4 effecting the taxpayer's acquisition of the MOD's chargeable interest on the latter's disposal. The chargeable consideration for that notional transaction was deemed by FA 2003, Finance Act 2003 section 75A subsec-or-para 5s. 75A(5) to be the largest amount given by any one person by way of consideration for the "scheme transactions" or received by the vendor. The MOD received 959m; however, MAR gave 1.25bn to the taxpayer as consideration for the sub-sale of the freehold. Thus, the chargeable consideration for the notional transaction in accordance with FA 2003, Finance Act 2003 section 75A subsec-or-para 5s. 75A(5)(a) was 1.25bn, rather than 959m. The effect of FA 2003, Finance Act 2003 section 75A subsec-or-para 5s. 75A(5) was that the taxpayer was liable to 50m of SDLT. The taxpayer chose to finance the transactions in a manner which was Shari'a-compliant and suffered more SDLT.
The Tribunal held that whilst the purpose of FA 2003,Finance Act 2003 section 75As. 75A was to counteract the avoidance of SDLT, the provision contained no requirement that the taxpayer should have a tax avoidance motive or purpose as a precondition or defence to the application of the provision. Parliament obviously intended that the provision should apply regardless of motive. However, the fact that a transaction might be carried out for commercial reasons did not mean that it did not also have a tax avoidance motive. Finance Act 2004, Finance Act 2004 section 306 subsec-or-para 1s. 306(1) and SDLT Regulations 2005 required transactions to be disclosed if the main benefit or one of the main benefits that might be expected to arise from the arrangements was obtaining an SDLT advantage.
Here, the taxpayer had not shown that its transactions, although having a commercial purpose, did not also have an intention to avoid SDLT. The taxpayer's adviser submitted the notification under SDLT Regulations 2005 where he clearly considered that the arrangements could fall within the SDLT Regulations 2005. It was clear from the notification that the taxpayer and its adviser were well aware that the structure of the relevant transactions involved an SDLT advantage. Furthermore, there was no evidence of intention to avoid SDLT from the taxpayer's present or former directors. Such evidence could not be more reliably inferred from the taxpayer's actions than from direct evidence of its directors. The precise motives of the...
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