10/11/2023
Court of Appeal dismisses HMRC’s appeal in ‘share-for-share’ exchange main purpose case
The Court of Appeal has unanimously dismissed HMRC’s appeal in the corporation tax case Delinian Limited (formerly Euromoney Institutional Investor plc) v HMRC. The taxpayer agreed in principle to sell shares it held to a third party for consideration in the form of cash and shares. The substantial shareholding exemption (SSE) would not have applied to the disposal of the shares, and so a chargeable gain was expected to arise on the proportion attributable to the cash consideration. However, prior to completion, it was decided to replace the cash-element with redeemable preference shares. Assuming that the ‘share-for-share exchange’ rules in sections 127 and 135 TCGA 1992 applied, an immediate taxable gain would not arise and, once a year had passed, the SSE would then apply to exempt the deferred gains crystallising on the redemption of the preference shares for cash. HMRC considered that section 137 TCGA 1992 applied – i.e. that the exchange formed “part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoidance of liability to capital gains tax or corporation tax” – which would disapply the share reorganisation tax treatment and cause the entire initial disposal to be taxable. Both the First-tier and Upper Tribunals decided in favour of the taxpayer that the condition in section 137 was not met.
HMRC submitted that the Tribunals ought to have looked separately at the element of the arrangements that led to the preference shares replacing the cash. If they had done so, they would have had to conclude that a main purpose of that part of the arrangements was tax avoidance. The Court of Appeal has disagreed, holding that, when applying the main purpose test in section 137, the arrangements that must be considered are the whole of the arrangements undertaken, not a selected part or parts of them. The Court dismissed the idea that a Tribunal might be required to sift through every permutation of the elements of a scheme to see if it can find such a combination that has as its main purpose, or a main purpose, tax avoidance.
Autumn Statement
A reminder that the Chancellor of the Exchequer, Jeremy Hunt, will deliver his Autumn Statement on Wednesday 22 November 2023. Please visit our Autumn Statement page for our coverage in the run up to the Statement and for insights and commentary on the day.
There will be an EMEA Dbriefs webcast on Thursday 23 November 2023 at 16.00 GMT/17.00 CET, during which our panel of speakers will analyse the Autumn Statement’s tax announcements.
Upper Tribunal allows HMRC appeal on capital allowances on technical study expenditure
The Upper Tribunal has issued a decision, largely in HMRC’s favour, in the capital allowances case Gunfleet Sands Limited & Others v HMRC. The taxpayers generate electricity from windfarms located off the UK coastline, and the dispute principally concerned whether disputed expenditure, incurred on various environmental impact and technical/engineering studies performed as part the process of establishing new windfarms, was qualifying expenditure ‘on the provision of plant or machinery’ for the purposes of section 11 of the Capital Allowances Act 2001. The Upper Tribunal first addressed a preliminary issue, in favour of the taxpayers, on the nature of the underlying plant, agreeing that certain collections of assets were to be considered together as single items of plant, rather than individual items of plant in their own right.
On the main issue, the First-tier Tribunal (FTT) had found that some elements of the disputed technical study expenditure qualified for capital allowances, but others did not. The Upper Tribunal judges however agreed with HMRC that the FTT had incorrectly applied an approach based on a test of necessity. The Upper Tribunal considered that this did not reflect the relevant legislation or case law. In its view, the legislation encapsulated a strict and narrow principle and the correct interpretation was that ‘on the provision of plant’ requires a direct link to the physical plant, its delivery, or its installation. Applying this view, and notwithstanding its earlier conclusion on the single/multiple plant issue, the Upper Tribunal concluded that none of the disputed expenditure was qualifying, as the expenditure related to the design and/or decisions as to “where, how and when” to install plant, rather than the installation itself. (Contact: Ignacio Veloso, Peter Millwood, Matt Smith, Stephen Perry or Adam Cook)
HMRC publish additional guidance on the meaning of R&D for tax purposes
HMRC have published a new set of guidance pages titled Help to see if your work qualifies as Research and Development for tax purposes (GfC3). The guidance forms part of HMRC’s new ‘Guidelines for Compliance’ (GfC) programme that sets out HMRC’s views on a number of complex or widely misunderstood UK tax matters. In GfC3, HMRC note that the definition of research and development for the purposes of claiming R&D tax relief or expenditure credits (RDEC) is set out in statutory DSIT guidelines. However, HMRC continue to see many misunderstandings of what is, and is not R&D under the DSIT guidelines. HMRC state that GfC3 is intended to expand upon their existing guidance on the DSIT guidelines and stress that GfC3 does not represent a change in their view of the law. The guidance also includes reminders of recently introduced additional statutory requirements for companies: to complete and submit a detailed ‘additional information form’ to support any R&D claims made in corporation tax returns from 8 August 2023; and for certain companies to notify HMRC if they are planning to make an R&D claim, for accounting periods beginning on or after 1 April 2023.
Deloitte Global Pillar Two Legislative Tracker
With the first Pillar Two global minimum tax rules starting to apply from the end of 2023, Deloitte’s proprietary digital tool – the Global Pillar Two Legislative Tracker – is designed to assist tax departments to monitor and navigate Pillar Two legislative developments in jurisdictions worldwide. The Tracker includes high-level summaries of Pillar Two proposals, enacted laws, and details of relevant dates in over 40 jurisdictions, together with interactive maps and country-by-country comparisons for easy review. The Tracker also includes details of Deloitte Pillar Two specialists, who you can contact for tailored advice on the status of legislation and compliance requirements in a particular jurisdiction. You can register for the Tracker here.
Government response to Treasury Committee Tax Reliefs report
The government has responded to the July 2023 report of the House of Commons Treasury Committee on tax reliefs. In her letter, the Financial Secretary to the Treasury (Victoria Atkins MP) notes that whilst she agrees with the Committee’s intentions, HMRC’s ongoing activity already delivers the majority of the Committee’s desired outcomes. The letter sets out specific concerns regarding some of the Committee’s recommendations, including that a full review of tax reliefs would impose significant uncertainty on the tax system, that increased reviews would create uncertainty for taxpayers, and that costing all tax reliefs would require collecting significant additional data.
EU updates list of non-cooperative jurisdictions
On 17 October 2023, the Economic and Financial Council (ECOFIN) of the Council of the European Union, announced the conclusions of its latest review of the EU list of non-cooperative jurisdictions for tax purposes. Three new jurisdictions – Antigua and Barbuda, Belize and Seychelles – have been added to the list of non-cooperative jurisdictions. Three jurisdictions were removed from the list: the British Virgin Islands, Costa Rica and the Marshall Islands. The revised list now comprises 16 jurisdictions: American Samoa, Antigua & Barbuda, Anguilla, Bahamas, Belize, Fiji, Guam, Palau, Panama, Russia, Samoa, Seychelles, Trinidad & Tobago, Turks & Caicos Islands, the US Virgin Islands and Vanuatu. The Council also approved and updated the ‘state-of-play’ document (Annex II) which reflects ongoing work and the commitments made to the EU by 14 further jurisdictions to reform their legislation to adhere to agreed tax good governance standards. For further details, see here. The next revision of the list is scheduled for February 2024.
Interpretation of VAT and excise legislation
HMRC have issued a policy paper and draft legislation “which clarifies how VAT and excise law should be interpreted in the light of changes made by the Retained EU Law (Revocation and Reform) Act 2023 (REUL Act)”. The REUL Act ended the supremacy and special status afforded to retained EU law in the UK. With regards to VAT and excise duty, a “bespoke” approach is proposed. The proposed legislation confirms that UK law cannot be quashed or disapplied on the basis it was incompatible with retained EU law. However, EU rights and principles will continue to have effect for the purpose of interpreting VAT and excise law, including the continued relevance of general principles of EU law. “This ensures the stability of the VAT and excise regimes and provides legal certainty.” Draft legislation has been published for a technical consultation open until 17 November 2023.
EMEA Dbriefs webcasts
We have a number of Dbriefs webcasts over the next few weeks covering: UK Tax Monthly Update November, UK Autumn Statement 2023 and Future Of Reward: Beyond The Board. For more information, and to view past webcasts on demand, please visit our website.