In Gemsupa and another v HMRC [2015] UKFTT 97 (3 March), the FTT found that a tax avoidance scheme relying on the group relief rules was effective.
Gemsupa and Wilmslow had implemented a scheme to avoid corporation tax on chargeable gains realised on the disposal of real estate. The transactions were structured so that the disposals to a company which was part of the British Land group had taken place when the vendors were also members of that group. Companies (P1 and P2) owned by the purchaser had subscribed for shares in the two vendors, the real estate had been sold and the purchaser had exercised its put option and sold P1 and P2 to companies of the vendors’ group. The vendors contended that, under TCGA 1992 s 171, the disposals had taken place on a ‘no gain, no loss basis’.
Referring inter alia to Ramsay (1981) 54 TC 101, the FTT observed that it must identify the purpose of s 171 and decide whether the transaction fell within its scope, ‘taking a realistic view of the facts’. However, applying Bupa Insurance [2014] UKUT 262 and Sainsbury [1991] STC 318, the FTT found that it could not ‘say that group relationships intended to be limited in time and established only for the purposes of obtaining the relief, were outside the purpose of the provisions’. Furthermore, referring to Astall [2009] EWCA Civ 1010, the FTT thought that even though the transactions were pre-ordained, the grouping provisions expressly ignored the existence of options.
Why it matters: The FTT recognised that its decision was ‘unsatisfactory given the tax avoidance motive of the appellants’; however, it felt bound by the definition of a group for these purposes. The GAAR (general anti-abuse rule) was introduced to defeat such schemes.
In Gemsupa and another v HMRC [2015] UKFTT 97 (3 March), the FTT found that a tax avoidance scheme relying on the group relief rules was effective.
Gemsupa and Wilmslow had implemented a scheme to avoid corporation tax on chargeable gains realised on the disposal of real estate. The transactions were structured so that the disposals to a company which was part of the British Land group had taken place when the vendors were also members of that group. Companies (P1 and P2) owned by the purchaser had subscribed for shares in the two vendors, the real estate had been sold and the purchaser had exercised its put option and sold P1 and P2 to companies of the vendors’ group. The vendors contended that, under TCGA 1992 s 171, the disposals had taken place on a ‘no gain, no loss basis’.
Referring inter alia to Ramsay (1981) 54 TC 101, the FTT observed that it must identify the purpose of s 171 and decide whether the transaction fell within its scope, ‘taking a realistic view of the facts’. However, applying Bupa Insurance [2014] UKUT 262 and Sainsbury [1991] STC 318, the FTT found that it could not ‘say that group relationships intended to be limited in time and established only for the purposes of obtaining the relief, were outside the purpose of the provisions’. Furthermore, referring to Astall [2009] EWCA Civ 1010, the FTT thought that even though the transactions were pre-ordained, the grouping provisions expressly ignored the existence of options.
Why it matters: The FTT recognised that its decision was ‘unsatisfactory given the tax avoidance motive of the appellants’; however, it felt bound by the definition of a group for these purposes. The GAAR (general anti-abuse rule) was introduced to defeat such schemes.
