Key Facts
- •FC Shipping Limited and FB Shipping Limited (Appellants) leased five ships to Fortis Finance (UK) Ltd, who sub-leased them to Vroon Group BV subsidiaries.
- •Appellants claimed capital allowances under the tonnage tax regime (Schedule 22, Finance Act 2000).
- •HMRC disallowed the allowances, arguing that the leases were "de-risked" under paragraph 90(1) of Schedule 22.
- •The dispute centered on whether paragraph 90 applied, considering the Head Lease, Sub-Lease, Fortis Bank Guarantee, and prepayments.
- •The Appellants argued the Head Lease alone constituted the "lease" under paragraph 89, while HMRC contended it included both the Head and Sub-Leases.
- •Expert evidence was presented by both sides, with disagreements on the calculation of "non-compliance risk".
Legal Principles
Capital allowances are generally claimable under s11 Capital Allowances Act 2001 for qualifying activities and expenditure.
Capital Allowances Act 2001
Schedule 22 Finance Act 2000 provides a tonnage tax regime for shipping companies, generally excluding capital allowances (paragraph 68).
Schedule 22, Finance Act 2000
Paragraph 89 Schedule 22 defines "lease" broadly as "any arrangements that provide for a ship to be leased...by a person...to another person."
Paragraph 89(2), Schedule 22, Finance Act 2000
Paragraph 90(1) prevents capital allowances if a lease or related transactions remove "the whole, or the greater part, of any non-compliance risk" from the lessor.
Paragraph 90(1), Schedule 22, Finance Act 2000
Paragraph 91 outlines "excepted forms of security" that do not trigger paragraph 90, including specific conditions regarding deposits and limitations on payments.
Paragraph 91, Schedule 22, Finance Act 2000
A purposive approach to statutory interpretation should be applied, considering the legislative purpose and scheme.
Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51; R (Quintavalle) v Secretary of State for Health [2003] 2 AC 687; Bloomsbury International Ltd v Department for Environment, Food and Rural Affairs [2011] 1 WLR 1546
Outcomes
Appellants' appeals dismissed.
The Tribunal found that the combined Head Lease and Sub-Lease constituted the "lease" under paragraph 89, and that the Fortis Bank Guarantee and the structure of the financing (including the prepayments) removed the greater part of the non-compliance risk, thus triggering paragraph 90.