In the recent case of Land Securities PLC v HMRC, the appellant Land Securities PLC appealed against the decision of the First Tier Tribunal, who had agreed with HMRC’s arguments to disallow claims made to deduct a capital loss from profits subject to corporation tax on the basis that the creation of the loss, and therefore the avoidance of tax, was the underlying motive behind the transaction.
The series of transactions involved Land Securities PLC selling shares in a subsidiary called LM Property Investments Limited (LMPI) to a subsidiary of Morgan Stanley in the Caymen Islands (C) with a put option being set up whereby C could sell the shares back to Land Securities PLC at any time after 29 February 2004. On 1 August 2003 C injected funds of around £200m into LMPI. On the same day C also agreed to sell back the shares in LMPI to Land Securities PLC for over £200m more than they had originally been purchased for.
The Upper Tier Tribunal denied relief, finding against the appellant on the basis that the transaction did not exist to create a commercial profit but that the materiality of the transaction was to create a loss for Land Securities PLC to offset against its profits and as such pay a lower amount of tax.
A further recent case (PA Holdings),involved a company constructing a complex arrangement in order to divert employee bonuses to be taxed as dividends rather than employment income, therefore saving tax and NICs. The Court of Appeal found that the payments were remuneration for employment and subject to Income tax and NICs accordingly.
PA Holdings’ appeal to the Supreme Court following this ruling has now been withdrawn and the decision at the Court of Appeal is therefore final. Further details of the case can be found at:
https://eavesandco.co.uk/blog/2012/01/18/a-payment-cannot-be-both-dividend-and-employment-income/.