With a little more time than usual to read tax cases, I paid greater attention to the 154 page judgment in the recent First-tier Tribunal case of Foundation Partners (GB) v HMRC [2021] UKFTT 18 (TC). The case was all to do with loss relief arising from a property development in Montenegro. Why did I bother? Well, it seemed to be dealing with the meaning of a ‘trade’ which is always of interest, especially as there is no statutory definition – other than ITA 2007 s 989 which just says that a trade includes ‘any venture in the nature of trade’.
The case involved a partnership which entered into a number of transactions which the tribunal judge decided were not shams but were ‘mislabelled’ in the sense that they did not have the legal effect that they purported to have. Whatever the label, what the transactions did was to create an enormous loss for which a tax deduction was claimed by the participants.
After 592 paragraphs, I learned that the taxpayers were not carrying on a trade (and in consequence did not get their relief) mainly because the transactions were devoid of any commerciality and were undertaken for the purpose of securing a tax deduction for the loss. I think we have all been here before. The analysis and the case references were all very familiar. It did not help the taxpayer’s cause that the judge said that he simply did not believe one of their key witnesses.
Whatever else I learned from this case, it did expose me unexpectedly to the new concept (at least to me) of a ‘tax shagger’.
I refrain from making any comment – I have led a sheltered life – but I would share a couple of extracts from the judgment of Judge Aleksander on the subject where he explained the concept:
‘a tax shagger or a so called investment product ... [is] a reference to something at the lower end of pricing, where there is no real commercial involvement, and FCP is just trying to get a big tax deduction for the investor’.
‘The fact that Project Adriatic may be a “tax shagger” does not, of itself, prevent Foundation from trading. The fact that tax avoidance may have been a motive for Foundation (or its partners) entering into various contracts and transactions does not prevent Foundation’s activities from being treated as a trade.’
You never know what new ideas you can learn from tax case reports these days.
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Foundation Partners: a new concept in tax
With a little more time than usual to read tax cases, I paid greater attention to the 154 page judgment in the recent First-tier Tribunal case of Foundation Partners (GB) v HMRC [2021] UKFTT 18 (TC). The case was all to do with loss relief arising from a property development in Montenegro. Why did I bother? Well, it seemed to be dealing with the meaning of a ‘trade’ which is always of interest, especially as there is no statutory definition – other than ITA 2007 s 989 which just says that a trade includes ‘any venture in the nature of trade’.
The case involved a partnership which entered into a number of transactions which the tribunal judge decided were not shams but were ‘mislabelled’ in the sense that they did not have the legal effect that they purported to have. Whatever the label, what the transactions did was to create an enormous loss for which a tax deduction was claimed by the participants.
After 592 paragraphs, I learned that the taxpayers were not carrying on a trade (and in consequence did not get their relief) mainly because the transactions were devoid of any commerciality and were undertaken for the purpose of securing a tax deduction for the loss. I think we have all been here before. The analysis and the case references were all very familiar. It did not help the taxpayer’s cause that the judge said that he simply did not believe one of their key witnesses.
Whatever else I learned from this case, it did expose me unexpectedly to the new concept (at least to me) of a ‘tax shagger’.
I refrain from making any comment – I have led a sheltered life – but I would share a couple of extracts from the judgment of Judge Aleksander on the subject where he explained the concept:
‘a tax shagger or a so called investment product ... [is] a reference to something at the lower end of pricing, where there is no real commercial involvement, and FCP is just trying to get a big tax deduction for the investor’.
‘The fact that Project Adriatic may be a “tax shagger” does not, of itself, prevent Foundation from trading. The fact that tax avoidance may have been a motive for Foundation (or its partners) entering into various contracts and transactions does not prevent Foundation’s activities from being treated as a trade.’
You never know what new ideas you can learn from tax case reports these days.
