The Commissioners for HM Revenue and Customs v Investec Asset Finance Plc and Investec Bank Plc
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Arnold,Judge Hellier |
| Neutral Citation | [2018] UKUT 0069 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,4 April 2018 |
| Date | 04 April 2018 |
| Published date | 04 April 2018 |
[2018] UKUT 0069 (TCC)
Appeal numbers
UT/2016/0176-0177
Corporation tax – Purchase by traders of partnership interests and adherence to
partnerships followed by realisation and distribution by partnerships of receivables
– whether purchase price of partnership interests and contributions to capital of
partnerships were capital or revenue expenditure – if revenue, whether incurred
wholly and exclusively for purposes of traders’ trades – if revenue incurred wholly
and exclusively, whether HMRC entitled to raise further issue not in closure notice
– whether partnership profits distributed to traders subject to two tax computations
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
THE COMMISSIONERS FOR HER
MAJESTY’S REVENUE AND CUSTOMS
Appellants
- and –
(1) INVESTEC ASSET FINANCE PLC
(2) INVESTEC BANK PLC Respondents
Tribunal: The Hon Mr Justice Arnold and Judge Charles Hellier
Sitting in public at the Rolls Building, Fetter Lane, London EC4A 1NL on 30-31 January
2018
John Tallon QC and James Rivett, instructed by the General Counsel and Solicitor to HM
Revenue and Customs, for the Appellants
Jonathan Peacock QC and Michael Ripley, instructed by Allen & Overy LLP, for the
Respondents
© CROWN COPYRIGHT 2018
Page 2
DECISION
Introduction
1. This is an appeal from a decision of the First-Tier Tribunal (Tax) (Tribunal
Judge Howard M. Nolan and Elizabeth Bridge) dated 24 May 2016 [2016]
UKFTT 356 (TC) on appeals by Investec Asset Finance plc (“IAF”) and
Investec Bank plc (“IBP”), collectively “Investec”, against conclusions and
amendments to their corporation tax returns contained in closure notices (“the
Closure Notices”) issued by the Commissioners of Her Majesty’s Revenue and
Customs (“HMRC”) in respect of seven transactions involving Investec’s
participation in leasing partnerships (“the Leasing Partnerships”). In its
decision, the FTT in effect decided six issues by way of preliminary issues. It
did not proceed to issue a final decision, correctly anticipating that both parties
were likely to appeal against its conclusions on one or other of the six issues.
The relevant transactions
2. Although Investec entered into transactions involving seven Leasing
Partnerships, it was agreed between the parties that the transaction involving
the Forty-Sixth Hong Kong Leasing Partnership (“HKP”) would be treated as
representative of the transactions involving four other Hong Kong Leasing
Partnerships. Thus the FTT only had to consider three transactions, namely:
(1) a transaction involving the Leasing Acquisitions General Partnership
(“LAGP”);
(2) a transaction involving the Garrard No. 2 Leasing Partnership LP
(“Garrard”); and
(3) a transaction involving HKP.
3. The LAGP transaction was summarised by the FTT as follows:
“3. The first transaction, generally referred to as the LAGP
transaction, involved UK tax based leases of LNG tankers that
had originally been written by companies in the National
Australia Bank group. The majority of [Investec’s] costs,
following the purchase of the partnership shares from Merrill
Lynch companies, involved contributing funds to the
partnership, as required by the purchase terms with Merrill
Lynch, to enable the partnership to retire the debt, owing to a
company in the Merrill Lynch group that had indirectly funded
the purchase of the leasing business. Following the acquisition
of the partnership shares by [Investec], the partnership
immediately received payments (in fact secured and actually
paid by two banks pursuant to letters of credit) of guaranteed
residual value payments owed to the partnership by the original
suppliers of the LNG vessels that had been the subject of the
leases and the relevant receipts were then distributed to the
partners, i.e. to [Investec].
…
Page 3
25. Following a number of involved transactions, [Investec] ended
up buying the LAGP partnership for the aggregate sum of
£8,854,001 and together contributing £226,181,882 as capital
to the partnership. This sum was used to purchase roughly £4 ¼
million worth of assets that were leased to various third parties,
with the vast majority of the capital contributed being applied
indirectly in repaying to the Merrill Lynch lender amounts that
had earlier been advanced to fund the outstanding liability of a
bridge company that had acquired the leasing business but left
the consideration for it outstanding. Following a transfer of the
leasing business by that bridge company to the LAGP
partnership, then composed of [Investec], the leases were
terminated (in fact pursuant to the exercise of the lessee’s
option) and the residual value payments were paid to the
partnership under the letters of credit. The vast bulk of those
receipts was then paid to [Investec] as distributions. The LAGP
partnership remained in existence, seemingly conducting the
residue of a leasing business with the assets acquired for the £4
¼ million just referred to. Quite why the decision was made to
acquire those other assets and to retain them in the small
residue of the leasing business of the partnership was not
particularly material.”
4. The Garrard transaction was summarised by the FTT as follows:
“4. The second transaction was referred to as the Garrard
transaction. This different in that although a relatively modest
Schroders leasing partnership was acquired by [Investec], that
partnership was acquired more with a view to leasing
companies in the Investec group disposing of relatively new
leases (most on current account but some on capital account) to
the partnership, with the partnership’s apparent objective being
to maximise the later third party sales prices by dividing the
great majority of the rental income streams from the residual
value of the assets and the entitlement to capital allowances,
and by then selling each to different purchasers respectively
keen to purchase (i) the rental streams alone and (ii) the roles
as the substantial majority partners, those roles carrying the
residual values and the hoped-for entitlement to the capital
allowances, along with a small residue of rentals.
…
28. The Garrard transaction commenced with the purchase of a
small leasing partnership that had been owned by the Schroders
group. The acquired partnership held a lease of a film that was
leased to the BBC. The witnesses and [Investec’s] counsel
were not entirely clear whether this lease was in a positive tax-
paying position though it eventually emerged that it probably
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