Key Facts
- •Centrica Overseas Holdings Limited (COHL) claimed corporation tax relief on £2,529,697 of expenses paid to Deutsche Bank, PwC, and De Brauw for services related to the disposal of its Oxxio BV subsidiary.
- •COHL's parent company, Centrica plc, had decided to sell Oxxio in 2009, but the sale process was complex and involved exploring various options including asset sales.
- •The disputed expenses were incurred between July 2009 and March 2011, leading up to the final asset sale to Eneco in March 2011.
- •HMRC issued a closure notice disallowing the deduction, leading to appeals to the FTT and UT, which were decided in COHL's favour.
- •HMRC appealed to the Court of Appeal on two grounds: whether the expenses were 'expenses of management' and whether they were 'expenses of a capital nature'.
Legal Principles
Expenses of management are expenses incurred in deciding whether to acquire or dispose of an asset, distinguishing them from implementation expenses.
Sun Life Assurance Society v Davidson, Camas Plc v Atkinson
'Expenses of a capital nature' in CTA 2009 s.1219(3)(a) has the same meaning as 'items of a capital nature' in CTA 2009 s.53(1).
Statutory interpretation based on legislative history, Explanatory Notes, and case law.
Whether an expense is capital or revenue is a question of law, determined by considering the nature of the payment, its purpose, and its use.
Atherton v British Insulated and Helsby Cables, Mallett v Staveley Coal and Iron Company, Strick v Regent Oil Co., Tucker v Granada Motorway Services, Wharf Properties v Commissioner of Inland Revenue
Outcomes
HMRC's appeal on Ground 1 (Expenses of Management) dismissed.
The FTT correctly applied the legal test and its findings of fact were supported by evidence; the Court of Appeal found no error of law.
HMRC's appeal on Ground 2 (Capital Expenditure) allowed.
The Court of Appeal held that the disputed expenses were capital in nature because they were incurred in the process of disposing of the Oxxio business, a capital transaction.