In ANO (No. 1) v HMRC [2019] UKFTT 406 (24 June 2019), the FTT found that a pre-ordained series of transactions, implemented to avoid the application of TCGA 1992 Sch 7A to pre-entry losses, achieved its purpose.
Sch 7A restricts the ability to use capital losses which have accrued to a company before it joins a group, but they do not restrict the use of a group’s losses against the capital gains of a company which joins the group after those losses have accrued. ANO had implemented a series of transactions intended to offset the capital gains of companies in the O&H group against the losses of companies in the ANO group, without falling foul of Sch 7A. It was accepted that if ANO had acquired O&H, the transactions would not have been caught by Sch 7A. However, this was not what had happened. Instead, a company called SSG had been put on top of the ANO group before acquiring the O&H group.
The issue was whether the ANO losses were pre-entry losses to the SSG group, so that gains of the O&H group could not be offset by the ANO losses. ANO contended that its shareholders immediately before its acquisition by SSG were the same as SSG’s shareholders immediately after the acquisition, and that immediately following the acquisition of ANO, SSG’s only asset was the shares in ANO, so that Sch 7A para 1(7) disapplied Sch 7A para 1(6).
Agreeing with ANO, the FTT considered that ‘immediately’ did mean ‘the very moment after’. It added that, given the absence of any tax avoidance test in Sch 7A and its detailed nature, it could not be construed as being suffused with the purpose of restricting the use of losses whenever there is a scheme designed to use them. It denied the use of losses in specific circumstances only. The tribunal added that the exemption granted by para 1(7) applies to situations where ‘there will generally be planned and virtually certain further transactions in the shareholders and/or the assets of the new holding company after its imposition’.
Finally, the FTT observed that Sch 7A operates at the level of the groups involved, rather than at the level of their shareholders.
Why it matters: This is a difficult and rather complex decision but its conclusion is unequivocal: ‘I see no reason to regard para 1(7) as creating … a restriction because a “clean” holding company is placed above Lossco prior to the acquisition of Gainsco even if that is part of a preordained series of transactions.’
In ANO (No. 1) v HMRC [2019] UKFTT 406 (24 June 2019), the FTT found that a pre-ordained series of transactions, implemented to avoid the application of TCGA 1992 Sch 7A to pre-entry losses, achieved its purpose.
Sch 7A restricts the ability to use capital losses which have accrued to a company before it joins a group, but they do not restrict the use of a group’s losses against the capital gains of a company which joins the group after those losses have accrued. ANO had implemented a series of transactions intended to offset the capital gains of companies in the O&H group against the losses of companies in the ANO group, without falling foul of Sch 7A. It was accepted that if ANO had acquired O&H, the transactions would not have been caught by Sch 7A. However, this was not what had happened. Instead, a company called SSG had been put on top of the ANO group before acquiring the O&H group.
The issue was whether the ANO losses were pre-entry losses to the SSG group, so that gains of the O&H group could not be offset by the ANO losses. ANO contended that its shareholders immediately before its acquisition by SSG were the same as SSG’s shareholders immediately after the acquisition, and that immediately following the acquisition of ANO, SSG’s only asset was the shares in ANO, so that Sch 7A para 1(7) disapplied Sch 7A para 1(6).
Agreeing with ANO, the FTT considered that ‘immediately’ did mean ‘the very moment after’. It added that, given the absence of any tax avoidance test in Sch 7A and its detailed nature, it could not be construed as being suffused with the purpose of restricting the use of losses whenever there is a scheme designed to use them. It denied the use of losses in specific circumstances only. The tribunal added that the exemption granted by para 1(7) applies to situations where ‘there will generally be planned and virtually certain further transactions in the shareholders and/or the assets of the new holding company after its imposition’.
Finally, the FTT observed that Sch 7A operates at the level of the groups involved, rather than at the level of their shareholders.
Why it matters: This is a difficult and rather complex decision but its conclusion is unequivocal: ‘I see no reason to regard para 1(7) as creating … a restriction because a “clean” holding company is placed above Lossco prior to the acquisition of Gainsco even if that is part of a preordained series of transactions.’
