Last week’s Supreme Court decision in favour of HMRC in the Tower MCashback case may make a general anti-avoidance rule less likely, tax experts have told Tax Journal.
Giles Goodfellow QC, Barrister at Pump Court Tax Chambers and Counsel for the taxpayers in the case reported last week, suggested that the decision might call into question the need for a GAAR when ‘no use is made of the statutory anti-avoidance provisions already available’.
Rupert Shiers, a Partner at Herbert Smith, said the decision ‘probably pushes the GAAR one step further away’. As so often, he said, the courts ‘have not needed a GAAR to reach their chosen result’.
Tax lawyers at Olswang said the most interesting aspect of the decision was its impact on ‘existing deals (including the old sale and leasebacks) and new deals’.
‘We were pleasantly surprised that the Supreme Court acknowledged that it was not enough for HMRC simply to point to money going round in a circle,’ the firm said, adding that ‘we consider that it will still be possible to structure similar deals provided certain elements are present’.
Stephen Herring, Tax Partner at BDO, said the Supreme Court judges had been ‘very unlikely’ to find in the taxpayers’ favour. The decision demonstrated, he said, that the Supreme Court ‘will seldom side with the taxpayer where a case concerns a cookie cutter or pre-packaged tax scheme’.
Herring added: ‘In particular, the use of limited recourse loans to attempt to ramp up the tax relief claimed has again been found to be very inadvisable. Few taxpayers need to be concerned at the decision.’
‘Unremitting ingenuity’
Lord Walker said the limited liability partnerships in Tower MCashback did not pay the borrowed money to MCashback to acquire software rights. ‘Instead they put it into a loop as part of a tax avoidance scheme,’ he said.
‘If a majority of the court agrees with my conclusion, it is to be expected that commentators will complain that this court has abandoned the clarity of BMBF and returned to the uncertainty of Ensign. I would disagree. Both are decisions of the House of Lords and both are good law.
‘The composite transactions in this case, like that in Ensign (and unlike that in BMBF) did not, on a realistic appraisal of the facts, meet the test laid down by the [Capital Allowances Act 2001], which requires real expenditure for the real purpose of acquiring plant for use in a trade.’
Lord Walker added: ‘Any uncertainty that there may be will arise from the unremitting ingenuity of tax consultants and investment bankers determined to test the limits of the capital allowances legislation.’
‘The Court’s decision emphasises the importance of having credible valuation evidence to show that the expenditure is being incurred on the plant rather than the finance package.
‘The use of limited recourse/vendor assisted loans to finance the purchase price has not been ruled out but there will be greater uncertainty as to what additional factors are required to prevent the expenditure being attributed to something other than the plant which is purchased.
‘More broadly, the case illustrates the difficulty of distinguishing on objective grounds between tax avoidance and ordinary tax planning. One might also question the need for a GAAR, when no use is made of the statutory anti-avoidance provisions already available.’
Giles Goodfellow QC, Barrister, Pump Court Tax Chambers
‘Tower MCashback is – on its face – consistent with the Court of Appeal decision in Astall that non-arm's-length transactions without commercial importance may well be ignored or rewritten for tax purposes. Advisers suggesting that it increases uncertainty have taken an over-optimistic view of the meaning of BMBF. But it probably pushes the GAAR one step further away: as so often, the courts have not needed a GAAR to reach their chosen result.’
Rupert Shiers, Partner, Herbert Smith
Last week’s Supreme Court decision in favour of HMRC in the Tower MCashback case may make a general anti-avoidance rule less likely, tax experts have told Tax Journal.
Giles Goodfellow QC, Barrister at Pump Court Tax Chambers and Counsel for the taxpayers in the case reported last week, suggested that the decision might call into question the need for a GAAR when ‘no use is made of the statutory anti-avoidance provisions already available’.
Rupert Shiers, a Partner at Herbert Smith, said the decision ‘probably pushes the GAAR one step further away’. As so often, he said, the courts ‘have not needed a GAAR to reach their chosen result’.
Tax lawyers at Olswang said the most interesting aspect of the decision was its impact on ‘existing deals (including the old sale and leasebacks) and new deals’.
‘We were pleasantly surprised that the Supreme Court acknowledged that it was not enough for HMRC simply to point to money going round in a circle,’ the firm said, adding that ‘we consider that it will still be possible to structure similar deals provided certain elements are present’.
Stephen Herring, Tax Partner at BDO, said the Supreme Court judges had been ‘very unlikely’ to find in the taxpayers’ favour. The decision demonstrated, he said, that the Supreme Court ‘will seldom side with the taxpayer where a case concerns a cookie cutter or pre-packaged tax scheme’.
Herring added: ‘In particular, the use of limited recourse loans to attempt to ramp up the tax relief claimed has again been found to be very inadvisable. Few taxpayers need to be concerned at the decision.’
‘Unremitting ingenuity’
Lord Walker said the limited liability partnerships in Tower MCashback did not pay the borrowed money to MCashback to acquire software rights. ‘Instead they put it into a loop as part of a tax avoidance scheme,’ he said.
‘If a majority of the court agrees with my conclusion, it is to be expected that commentators will complain that this court has abandoned the clarity of BMBF and returned to the uncertainty of Ensign. I would disagree. Both are decisions of the House of Lords and both are good law.
‘The composite transactions in this case, like that in Ensign (and unlike that in BMBF) did not, on a realistic appraisal of the facts, meet the test laid down by the [Capital Allowances Act 2001], which requires real expenditure for the real purpose of acquiring plant for use in a trade.’
Lord Walker added: ‘Any uncertainty that there may be will arise from the unremitting ingenuity of tax consultants and investment bankers determined to test the limits of the capital allowances legislation.’
‘The Court’s decision emphasises the importance of having credible valuation evidence to show that the expenditure is being incurred on the plant rather than the finance package.
‘The use of limited recourse/vendor assisted loans to finance the purchase price has not been ruled out but there will be greater uncertainty as to what additional factors are required to prevent the expenditure being attributed to something other than the plant which is purchased.
‘More broadly, the case illustrates the difficulty of distinguishing on objective grounds between tax avoidance and ordinary tax planning. One might also question the need for a GAAR, when no use is made of the statutory anti-avoidance provisions already available.’
Giles Goodfellow QC, Barrister, Pump Court Tax Chambers
‘Tower MCashback is – on its face – consistent with the Court of Appeal decision in Astall that non-arm's-length transactions without commercial importance may well be ignored or rewritten for tax purposes. Advisers suggesting that it increases uncertainty have taken an over-optimistic view of the meaning of BMBF. But it probably pushes the GAAR one step further away: as so often, the courts have not needed a GAAR to reach their chosen result.’
Rupert Shiers, Partner, Herbert Smith
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