04 March 2021

Euromoney v HMRC; (FTT)

Euromoney Institutional Investor PLC v HMRC [2021] UKFTT 61

Euromoney was party to a joint venture whereby it licensed data to Capital Data Limited (“CDL”) in return for royalties and also held shares in CDL which carried no right to dividends during the operation of the licence. As a result, the CDL shares did not qualify for SSE. Euromoney agreed in principle to sell the CDL shares to the Carlyle Group for $85 million, to be satisfied by a 15.5% equity stake in the buyer and $26 million in cash. Subsequently, however, Euromoney asked Carlyle if redeemable preference shares could be issued instead of the cash, and Carlyle agreed. The thinking behind the preference shares was that all the capital gain on the CDL shares could then be rolled over under s.135 TCGA 1992 into the ordinary and preference shares, and after 12 months Euromoney could redeem the preference shares for cash and qualify for SSE, thereby saving corporation tax on $26 million. However, HMRC argued that s.135 was disapplied by s.137, which provides that s.135 does not apply to an exchange if the exchange formed part of a scheme or arrangements of which the main purpose, or one of the main purposes, was avoidance of liability to corporation tax, with the result that tax was payable on the entire exchange. The FTT held (1) that s.137 requires consideration of the scheme or arrangements as a whole and not merely, as HMRC argued, the replacement of the cash with preference shares, and on that basis (2) one of the purposes of the arrangements was avoidance of liability to tax , but (3) this was not a main purpose because the witness evidence, which the FTT accepted, was that Euromoney’s main subjective purposes were commercial and the tax considerations were not important in that context. Accordingly the FTT allowed Euromoney’s appeal.

Kevin Prosser QC instructed by KPMG LLP for Euromoney.

Sadiya Choudhury instructed by HMRC.

To read the full judgment, click here.