Clavis Liberty Fund 1 LP v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mr Justice Mann |
| Neutral Citation | [2017] UKUT 0418 (TCC),[2017] UKUT 0418 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,19 October 2017 |
| Date | 19 October 2017 |
| Published date | 20 October 2017 |
[2017] UKUT 0418 (TCC)
Appeal number: UT/2016/0126
INCOME TAX – tax avoidance scheme – Partnership purchasing rights to
dividends and receiving dividends – whether the purchase of dividend rights and
receipt of dividends were transactions in the course of that trade – held no –
whether certain fees in respect of tax advice were a deductible trading expense –
held no – appeal dismissed
UPPER TRIBUNAL
TAX AND CHANCERY CHAMBER
CLAVIS LIBERTY FUND 1 LP
(acting through Mr D J Cowen)
Appellant
- and -
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS
Respondents
TRIBUNAL:
MR JUSTICE MANN
Sitting in public at The Rolls Building, Fetter Lane, London EC4A 1NL on 18th
July 2017
Andrew Thornhill QC and Jonathan Bremner, instructed by M&S Solicitors Ltd
for the Appellant
Michael Gibbon QC and Imran S Afzal, instructed by the General Counsel and
Solicitor to HM Revenue and Customs, for the Respondent
© CROWN COPYRIGHT 2017
DECISION
Introduction
5
1. This is an appeal from a decision of the First-tier Tribunal (“FTT”) [2016]
UKFTT 253 (TC)) delivered on 18th April 2016 by the members Judge John Walters
QC and Elizabeth Bridge. In it they dismissed an appeal which was technically by Mr
D J Cowen, a former member of the limited partnership known as Clavis Liberty
Fund LLP (“Clavis”) against a closure notice dated 1st February 2013. In that closure 10 notice HMRC (“the Revenue”) reduced a claim to trading loss of £60,942,061 to nil.
2. The claimed loss arose out of an artificial scheme (even Mr Thornhill QC, who
appeared for the taxpayer Clavis, admitted that it had artificial elements) intended to
generate a tax loss for members of Clavis (a Jersey limited Partnership) which they
could then deploy in their tax affairs elsewhere. The loss was said to have been 15 generated by the application of section 730 of the Income and Corporation Taxes Act
1988 (“ICTA”). I shall deal with the scheme below, but in essence it worked as
follows. The plan of the Partnership was to buy the right to the bulk of dividends to
be declared by a company known (for short) as Helios for a purchase price of
£59,958,000. The amount of the dividends to which it would become entitled, when 20 declared, would be £60,000,000, generating a profit of £42,000. The provisions of
section 730 had the effect, according to the Partnership, of deeming the dividends still
to be the income of the seller and not of the Partnership. If that is how the provisions
work then the Partnership would bring in the cost of buying the dividend as an
expense but would not bring in the actual fruit of the dividend as income. That is 25 what is said to have given rise to the loss available to the members of the Partnership.
3. The questions arising on this appeal are in outline as follows:
(a) Was the transaction in question, as outlined above, a trading
transaction? HMRC contended it was not, so none of the expenditure
relating to the transaction falls to be taken into account for tax purposes, 30 thus eliminating the loss. On this appeal this was described as Issue 1 (it
was Issue 2 in the FTT).
(b) If the answer to Issue 1 is that it was indeed a trading transaction,
then an issue arose as to the operation of section 730, and in particular
whether it prevented the dividend, when received, from being treated as 35 the income of the Partnership. If it allowed the income to be so treated
then the loss would not arise. This was Issue 2.
(c) A question arose as to whether a sum of £761,000 odd, paid by way
of tax advisory fees to a concern known as Mercury, were deductible in
the tax accounts of the Partnership. They were incurred in relation to the 40 planning and implementation of the scheme which gave rise to the
transaction in question. In this appeal this was known as Issue 3.
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