Another really bad FTT judgment -but luckily right

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Judge here uses obiter comments of another FTT judge to conclude on "main or one of the main" purposes test, when there is a HoL decision, Brebner*, staring him in the face as to the proper test. He also refers to irrelevant looking W&E case law for his reasoning. Fortunately (as there was presumably £10ms tax at stake) he gets the correct result nonetheless. Just shows what a complete lottery tax litigation is.

https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07920.html

* Oddly he only took account of this case on the question of whether the test is subjective or objective and seems to have ignored the rest of it.

[Edit 11.11.20] Update: I've just had an email from the editor of a well respected legal publication who agrees it's a badly written judgment, especially para 121 (which I agree is mostly gobbledegook non-sequiturs).

 

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By richard thomas
06th Nov 2020 10:33

I disagree. It is not a bad judgment, and certainly not "really bad".

I assume you agree that [115] of the decision is correct, and is the foundation for John Brooks' finding at [121]. [115] is based on a binding and entirely relevant (because it is about the LR unallowable purpose rule) decision, that of the CofA in TDS. Lo and behold the passage John quotes from TDS at [109] describes Brebner and applies it as relevant.

There is no reason then to specifically refer to Brebner as the basis for the decision.

He does not rely on Tony Beare's case as the basis of his decision on unallowable purpose, but as a decision on apportionment.

His reliance on Mallalieu is perfectly correct and relevant as to the scope of a subjective purpose test.

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Replying to richard thomas:
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By Justin Bryant
20th Nov 2020 11:53

I respectfully disagree.

"Main” appears to have often been misinterpreted by judges (and advocates*) in this context (seemingly due to a failure to properly apply or even consider Brebner or where certain badly decided cases appear to have been followed**) as being analogous to something that is merely “important” (see particularly the recent Ladbroke case***).

Indeed, HMRC’s guidance in the link below confirms that the test in Brebner is similar to that concerning Intangible Assets tax avoidance arrangements and so can be relied upon to allow straight forward commercial transactions to be structured tax effectively under this test.

https://www.gov.uk/hmrc-internal-manuals/corporate-intangibles-research-...

As for the judgment, he merely had to say that following Brebner, as the tax advantage(s) resulted from tax efficient “tweaking” of the overall transaction (having found the transaction without such tweaking would have happened anyway) then the test is failed, so the debits are allowed. It was bad to overlook that binding HoL case law and rely instead on FTT obiter comments and a W&E case (in respect of the latter there was no case law justification under "main purposes" case law to appeal to the subconscious thoughts of a taxpayer as determined under W&E case law and fortunately no damage was done - it also conflicts with what the UT said in Ladbrokes re subjective purpose being easy to ascertain in practice: https://www.accountancydaily.co/ladbrokes-loses-case-over-ps71m-tax-avoi... ). See also: https://www.accountingweb.co.uk/any-answers/another-dodgy-looking-tax-av...

Let's see if the great & good in the tax press agree with me or not.

*I have spoken to KPQC about this and he has it wrong in my view and considers "main" just means "important".

** Special Commissioner Barlow in Snell v HMRC [2008] STC (SCD) 1094 misinterpreted Brebner in finding in paras 22 & 25 that in order for a tax advantage not to be a 'main object', it has to be 'purely incidental and of little importance compared with the other object or objects'. That is an incorrect “main” test (this error probably arose due to incorrectly paraphrasing here the “icing on the cake” dicta in Sema), and resulted in finding there was a main purpose where the tax benefit of the transaction was just 7% of the total transaction value (which was originally commercial, but tweaked with tax advice that was presentationally unhelpful (“what can we get away with”) to get a tax benefit).

http://www.bailii.org/uk/cases/UKSPC/2008/SPC00699.html

See also the following non-sequitur from the case below:

“It is clear from our findings of fact that there was more than one way to provide funding to the football club and that one of the reasons that Mr Sullivan chose to provide funds to the football club in the specific way that transpired was so that the Appellant could claim a capital loss. Therefore we consider securing a tax advantage to have been “one of the main purposes” of the arrangements. “

http://www.bailii.org/uk/cases/UKFTT/TC/2018/TC06340.html

***Worryingly, the Court of Appeal has recently stated in the Ladbroke case that “importance” is what this phrase connotes. But they did that without any apparent case law justification and if that is right then since tax reasons are rarely unimportant in any commercial transaction it implies that the unallowable purpose test is very wide indeed, even where the tax advantage is modest or secondary compared to the non-tax commercial benefits. It would also appear to conflict with Brebner, where the tax advantage tweaking was undoubtedly important, perhaps with the qualification that it would have been highly unusual not to have done the tax tweaking in that case. Any dictionary definition of "main" shows it is much more than this and if it references the word “important” it will describe main as the most important thing which is clearly a long way from the court’s interpretation of it merely being of some importance. So main cannot merely mean of some importance. It is clearly much more than that and it is hoped the Supreme Court will correct that one day. There is support for that concern in the OECD link below, which asserts this phrase is unclear and problematic:

https://www.internationaltaxreport.com/double-taxation/beps-action-6-the...

The Ladbrokes case was not really an analogous case anyway for the reasons I state here (as the main purpose point was actually admitted by the taxpayer at the FTT): https://www.accountingweb.co.uk/tax/hmrc-policy/all-bets-off-as-ladbroke...

Interesting to see how significant/main purpose tests are applied in other contexts (they also follow a Brebner style analysis). See: http://www.bailii.org/ew/cases/EWCOP/2020/52.html

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By Justin Bryant
20th Nov 2020 14:29

I note Heather Self in TJ agrees this was a bad judgment for similar reasons to mine: https://www.taxjournal.com/articles/blackrock-unallowable-purpose

Its correctness is also seriously questioned for similar reasons by the learned authors here: https://www.taxjournal.com/articles/-tax-the-city-review-for-november

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By SteveHa
20th Nov 2020 15:32

My money is on the Judge winning this round.

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Replying to SteveHa:
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By Justin Bryant
01st Dec 2020 10:07

Well, its correctness is also questioned here:

"...but in the wider context is it right to conclude that because a loan gives rise to a tax deduction (ergo an advantage) there is de facto an unallowable purpose? This aspect of the decision has rightly been widely questioned."

https://uk.andersen.com/newsletter/tax-news-november-2020/

So I reckon I'm right and it's a bad judgment (or at least very badly written).

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Replying to Justin Bryant:
Psycho
By Wilson Philips
01st Dec 2020 10:16

Justin Bryant wrote:
So I reckon I'm right

Of course you do.

D Trump also reckons that he’s right.

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Replying to Justin Bryant:
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By Justin Bryant
12th Sep 2022 14:09

More commentators here disagreeing with UT I note: https://www.taxjournal.com/articles/one-minute-with-jisun-choi-?utm_sour...

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Replying to Justin Bryant:
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By richard thomas
12th Sep 2022 14:15

She doesn't say it's wrong, only impractical.

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Replying to richard thomas:
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By Tax Dragon
12th Sep 2022 14:23

richard thomas wrote:

She doesn't say it's wrong, only impractical.

That's a decent summary of 38% of UK tax law (and that figure trends up, not down).

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