29 July 2022
HMRC v Euromoney Institutional Investor PLC; (UT)
The taxpayer company (“Euromoney”) agreed in principle to transfer its shares in a company (“CDL”) to an acquiring company (“DTL”) for a total consideration valued at $80.44 million, of which some $21 million consisted of cash and the remainder consisted of ordinary shares in DTL.
After striking that commercial deal, it realised that it would be more tax efficient if it received some $21 million worth of redeemable preference shares in DTL (“Preference Shares”) instead of the cash consideration as no tax charge would arise on redemption of such Preference Shares whereas it would arise on a receipt of cash. Therefore, Euromoney renegotiated the commercial deal so that it exchanged its CDL shares for a combination of ordinary shares and Preference Shares.
In due course the Preference Shares were redeemed giving Euromoney the tax-free receipt that it sought. HMRC contended that the exchange formed part of a scheme or arrangements of which the main purpose, or one of the main purposes, was the avoidance of liability to corporation tax, so that s137 TCGA 1992 applied to prevent the application of s.135 to the exchange.
The FTT rejected that contention, holding that the exchange formed part of arrangements of which tax avoidance was a purpose, but not a main purpose. HMRC appealed to the UT, which has now upheld the FTT’s decision. The case is interesting as an unusual instance of a tribunal holding that tax avoidance is a purpose but not a main purpose.
Kevin Prosser QC, instructed by KPMG LLP, for the Respondents.
To view the decision, please click here.