DMWSHNZ Ltd (In Members' Voluntary Liquidation) v The Commissioners for HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judge | Mrs Justice Rose |
| Neutral Citation | [2014] UKUT 0098 (TCC),[2014] UKUT 0098 (TCC) |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
| Subject Matter | Tax,3 March 2014 |
| Date | 03 March 2014 |
| Published date | 01 December 2016 |
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[2014] UKUT 0098 (TCC)
FTC/30/2013
Corporation tax – disposal of qualifying corporate bonds – disposal of debts -
section 116(10) Taxation of Chargeable Gains Act 1992 – held-over capital gain
brought into charge – joint election under section 171A TCGA – whether disposal
by repayment of the debt underlying the bonds is a disposal ‘to’ a person outside the
corporate group – whether the bonds exist after the repayment of the debt and are
disposed of ‘to’ the debtor – reliance on extra-statutory material for construction of
relevant provisions
UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
BETWEEN:
DMWSHNZ LIMITED
(in members’ voluntary liquidation) Appellant
- and –
THE COMMISSIONERS FOR HER MAJESTY’S
REVENUE AND CUSTOMS Respondents
TRIBUNAL: the Hon Mrs Justice Rose
Sitting in public in London on 22 and 23 January 2014
Mr Graham Aaronson QC and Ms Zizhen Yang instructed by Ernst & Young LLP for the
Appellant
Mr Michael Gibbon QC instructed by the General Counsel and Solicitor for HM Revenue &
Customs for the Respondents
© CROWN COPYRIGHT 2014
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DECISION
The appeal of the Appellants IS DISMISSED
REASONS
1. This is an appeal against the decision of the First-tier Tribunal (Tax) dated 21
December 2012 (Judge Jonathan Cannan and Mrs Caroline de Albuquerque). It
arises from HMRC’s decision to reject a purported joint election made under
section 171A of the Taxation of Chargeable Gains Act 1992 (‘TCGA’). The effect
of the election would have been to enable a sister company of the Appellant to set
off a loss of about £92 million incurred by that sister company against a capital gain
of about £88.7 million made by the Appellant. That would have reduced the
group’s corporation tax liability on the chargeable gains and losses to zero. If
HMRC’s rejection of the joint election is upheld, the Appellant will have to pay
corporation tax on its capital gain of about £29 million.
The transaction
2. The facts are not in dispute and were clearly and comprehensively set out in the
First-tier Tribunal’s decision.
3. Until 22 October 2003 the Appellant was a member of the Bank of Scotland Group.
On 9 September 1998 the Appellant sold its shares in its wholly- owned New
Zealand subsidiary which was a company called Countrywide Banking Corporation
Limited (‘Countrywide’). The acquirer of the shares in Countrywide was NBNZ
Holdings Limited (‘NBNZ’) and the consideration for the shares was NZ$850
million. The consideration was satisfied by NBNZ providing the Appellant with 10
year unsecured floating rate notes (‘the Loan Notes’). In other words, instead of
NBNZ paying the NZ$850 million to the Appellant in cash, that sum was thereafter
treated as money lent by the Appellant to NBNZ with NBNZ promising to pay the
loan off over 10 years in accordance with the terms of the Loan Notes. In loan note
parlance, NBNZ was the issuer of the Loan Notes and the Appellant was the holder
of them.
4. The Loan Notes were qualifying corporate bonds for the purposes of capital gains
tax (“CGT”) and I will have to consider the significance of this later. This meant
that although a capital gain was crystallised on the disposal of the shares by the
Appellant in 1998, that gain would only be charged to tax on a future triggering
disposal of the Loan Notes. As at 2002 the held-over gain created by the 1998 sale
of Countrywide shares was about £203.7 million.
5. In 2003 Bank of Scotland was owed £42,150,000 by an investment trust called
Geared Income Investment Trust PLC (‘Geared Income’). Lloyds TSB Bank PLC
was owed a similar amount. Together the two banks appointed joint administrative
receivers. The effect of this was that capital losses realised by Geared Income
would be allowable for CGT purposes. Geared Income thereby realised capital
losses on its investments of approximately £180 million.
6. A planned re-structuring was then put in place with a view to enabling the Group to
set off Bank of Scotland’s share of the losses in Geared Income against the held-
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