Olivia Wilkinson & Ors v The Commissioners for HMRC
[2023] UKFTT 695 (TC)
Delinian Limited v The Commissioners for HMRC
3 November 2023
[2023] EWCA Civ 1281
Court of Appeal
Euromoney cleverly swapped shares to avoid paying tax. The taxman said it was cheating, but the court said it was legal because it wasn't the main reason for the deal. The court clarified the rules to make sure similar clever plans are judged fairly in the future.
Key Facts
- •Euromoney exchanged shares in Capital Data for ordinary and preference shares in Diamond, aiming to utilize the substantial shareholdings exemption to avoid corporation tax.
- •HMRC assessed a corporation tax liability, arguing the transaction was primarily tax-driven.
- •The First-Tier Tribunal (FTT) allowed Euromoney's appeal, finding tax avoidance wasn't a main purpose of the arrangements.
- •The Upper Tribunal (UT) dismissed HMRC's appeal, agreeing with the FTT's assessment.
- •HMRC appealed to the Court of Appeal, arguing the FTT and UT incorrectly analyzed the 'scheme or arrangements' under section 137(1) of the TCGA 1992.
Legal Principles
Sections 135-137 of the TCGA 1992 allow deferral of capital gains tax on share exchanges for bona fide commercial reasons, not for tax avoidance.
Taxation of Chargeable Gains Act 1992 (TCGA)
Section 137(1) requires the exchange to be for bona fide commercial reasons and not part of a scheme whose main purpose is tax avoidance. The 'scheme or arrangements' considered must be the whole scheme, not selected parts.
TCGA 1992, Section 137(1)
In determining whether tax avoidance was a main purpose, the context of the legislation (deferral, not exemption) is crucial. If the scheme leads to non-payment of tax that would otherwise be due, even if deferred, it's tax avoidance.
TCGA 1992, Sections 135-137
The 'exchange' and 'scheme or arrangements' are distinct. The exchange is the transaction itself, while the scheme encompasses the reasons and motives behind it. The entire exchange must be considered in relation to the entire scheme.
Court of Appeal interpretation of TCGA 1992, Section 137(1)
Outcomes
HMRC's appeal dismissed.
The Court of Appeal held that section 137(1) requires consideration of the entire share exchange within the context of the entire scheme. The FTT and UT correctly considered the whole scheme and found tax avoidance was not a main purpose.
Euromoney's cross-appeal dismissed.
The Court of Appeal rejected Euromoney's argument that using the substantial shareholdings exemption was not tax avoidance. The scheme resulted in non-payment of tax that would otherwise have been due, even if deferred.
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