Key Facts
- •Ten appellants, with a common director (Mr. Anshul Doshi), appealed HMRC's refusal to grant SEIS compliance certificates.
- •Appellants sought SEIS relief for investments in ten companies, each focused on a different religious site in India or Nepal.
- •The appellants' business plan evolved from film production to encompass metaverse projects.
- •HMRC argued that the appellants did not meet the risk-to-capital, trading, and disqualifying arrangements conditions for SEIS relief.
- •Significant funds were channeled through related parties, and there were inconsistencies in financial records and explanations.
- •The appellants' strategy involved subcontracting almost all work to companies and individuals connected to Mr. Doshi.
Legal Principles
Eligibility for SEIS relief requires meeting several conditions, including the risk-to-capital condition, trading condition, and no disqualifying arrangements.
Income Tax Act 2007 (ITA 2007)
The risk-to-capital condition considers long-term growth objectives and significant risk of capital loss.
ITA 2007, Section 257AAA
The trading condition requires that the company exists wholly for carrying on one or more qualifying trades, and that trade must not consist substantially of excluded activities (e.g., receiving royalties or licence fees, unless attributable to the exploitation of relevant intangible assets created by the company).
ITA 2007, Sections 257DA, 189, 192, 195
Disqualifying arrangements exist if the main purpose is to secure qualifying business activity and tax relief, and either a majority of funds are paid to a connected person or the activity would have been carried on by a connected person in the absence of the arrangements.
ITA 2007, Section 257CF
The shares requirement mandates that shares be subscribed wholly in cash and fully paid up at the time of issuance.
ITA 2007, Section 257CA
Outcomes
Appeals dismissed.
Appellants failed to satisfy the risk-to-capital, trading, and disqualifying arrangements conditions for SEIS relief. Artificial fragmentation of the business into ten companies was identified as a key factor. The lack of independent trading and evidence of intellectual property creation also contributed to the dismissal.