Key Facts
- •Seven companies (Employers) received assessments under s 160 Finance Act 2004 for unauthorized employer payments from their pension funds.
- •Morgan Lloyd Trustee Limited (MLT), the financial advisor, received assessments under s 239 FA 2004 for scheme sanction charges.
- •Three types of transactions were involved: loans secured by intellectual property (IP), sale and leaseback of IP, and sale and licence back of IP.
- •The core issue concerned the valuation of IP assets (software, trademarks, domain names, websites, databases).
- •The Tribunal heard evidence over four weeks, including from 15 witnesses and three expert valuation witnesses.
Legal Principles
Unauthorized employer payments are chargeable if the security for a loan is not of adequate value (s 179(1)(b) and Schedule 3 FA 2004) or if assets sold to the pension fund are sold for an amount exceeding an arm's length price (s 180(2) FA 2004).
Finance Act 2004
Market value is defined as the price assets might reasonably be expected to fetch on a sale in the open market (s 272 Taxation of Chargeable Gains Act 1992).
Taxation of Chargeable Gains Act 1992
Scheme sanction charges against MLT are assessable unless MLT reasonably believed the unauthorized payment wasn't chargeable and it's not just and reasonable for them to be liable (s 268(7)(a) and (b) FA 2004).
Finance Act 2004
Applications for relief from scheme sanction charges must be made within six years of the accounting period's end (SI 2005/3452 Reg 3(1)).
SI 2005/3452
Outcomes
The Tribunal determined the specific assets subject to each Pension Funding Deal, concluding that in some cases, only the domain names, not the websites, were included.
The operative documents clearly specified 'domain name', and there wasn't sufficient evidence to support a broader interpretation.
VAT was excluded from payments in sale and leaseback transactions.
The legislation aims to minimize actual economic loss to the pension fund, and recoverable VAT doesn't represent such a loss.
The Tribunal rejected the Appellant's arguments to exclude existing loans from new loans in the Ballards deal, upholding the loan amount stated in the documentation.
The loan documents clearly specified the loan amount, and the Appellant's arguments about cash movements didn't override the legal documents.
The Tribunal rejected the Appellants' valuations for Ballards and Gannon, finding them unrealistic and not based on a proper application of market value principles.
The valuations failed to adequately consider a realistic market for the IP assets and relied on optimistic assumptions about future profitability.
The Tribunal found the applications for relief from scheme sanction charges for Formwise, Langford, and Prisym were made late, and therefore disallowed.
The applications were not received within the six-year time limit stipulated in the regulations, and there was insufficient evidence that they were sent on time.
The Tribunal found that MLT did not reasonably believe the unauthorized payments in Ballards, Gannon, and Criticall were not scheme chargeable payments, and therefore upheld the scheme sanction charges.
MLT failed to apply critical commercial analysis to the valuations, demonstrating a passive approach to risk assessment and a lack of scrutiny, despite having processes in place to prevent such payments.