In Fidex v HMRC [2016] EWCA Civ 385 (21 April 2016), the Court of Appeal found that HMRC was not precluded from raising a substantive issue by the terms of its closure notice; and that the derecognition of bonds as part of a scheme had not triggered the intended debit under FA 1996 Sch 9 para 19A, as the debit was unallowable under para 13.
The appeal related to a tax avoidance scheme called Project Zephyr. The purpose of the scheme was to create a loss of around €84m, as a result of the derecognition of bonds held by Fidex, which would be available for group relief throughout the BNP Paribas group of companies of which Fidex was a member.
There was both a procedural issue and a substantive issue. The procedural issue was whether HMRC was precluded from raising the substantive issue by the terms of its closure notice. The substantive issue was whether the debits were attributable to an unallowable purpose.
In relation to the procedural issue, applying Tower MCashback [2011] UKSC 19, the Court of Appeal found that the scope of the appeal was defined by the conclusions stated in the closure notice but that HMRC was not restricted to the process of reasoning by which it had reached those conclusions; it was free to deploy new arguments in support of them. The conclusion was that the sum of €83,849,399, representing the value of derecognised listed bonds, should not have been included in the change in basis adjustments.
As for the substantive issue, the Court of Appeal observed that the question was whether and to what extent the debit was attributable to the unallowable purpose for which the bonds were held. The court found that the debit arose from and was entirely attributable to Project Zephyr.
Why it matters: Fidex had argued that if, in an accounting period, a company had one or more allowable main purposes for being a party to a loan relationship and one unallowable main purpose, it was not just and reasonable to attribute the whole of the relevant debit to the unallowable purpose. The court accepted that Fidex may have held the bonds irrespective of the unallowable purpose, but that was not the issue. The issue was whether the debit was attributable to the unallowable purpose for which the bonds were held.
Also reported this week:
MF Fowler v HMRC Did income from diving activities represent business profits?
In Fidex v HMRC [2016] EWCA Civ 385 (21 April 2016), the Court of Appeal found that HMRC was not precluded from raising a substantive issue by the terms of its closure notice; and that the derecognition of bonds as part of a scheme had not triggered the intended debit under FA 1996 Sch 9 para 19A, as the debit was unallowable under para 13.
The appeal related to a tax avoidance scheme called Project Zephyr. The purpose of the scheme was to create a loss of around €84m, as a result of the derecognition of bonds held by Fidex, which would be available for group relief throughout the BNP Paribas group of companies of which Fidex was a member.
There was both a procedural issue and a substantive issue. The procedural issue was whether HMRC was precluded from raising the substantive issue by the terms of its closure notice. The substantive issue was whether the debits were attributable to an unallowable purpose.
In relation to the procedural issue, applying Tower MCashback [2011] UKSC 19, the Court of Appeal found that the scope of the appeal was defined by the conclusions stated in the closure notice but that HMRC was not restricted to the process of reasoning by which it had reached those conclusions; it was free to deploy new arguments in support of them. The conclusion was that the sum of €83,849,399, representing the value of derecognised listed bonds, should not have been included in the change in basis adjustments.
As for the substantive issue, the Court of Appeal observed that the question was whether and to what extent the debit was attributable to the unallowable purpose for which the bonds were held. The court found that the debit arose from and was entirely attributable to Project Zephyr.
Why it matters: Fidex had argued that if, in an accounting period, a company had one or more allowable main purposes for being a party to a loan relationship and one unallowable main purpose, it was not just and reasonable to attribute the whole of the relevant debit to the unallowable purpose. The court accepted that Fidex may have held the bonds irrespective of the unallowable purpose, but that was not the issue. The issue was whether the debit was attributable to the unallowable purpose for which the bonds were held.
Also reported this week:
MF Fowler v HMRC Did income from diving activities represent business profits?
