CheckLists.Tax (beta)
G4: Insertion of new holding company
- Sale to company in return for shares in company (query whether shares worth less)
- Minority interest in company owning listed shares is worth less than outright ownership of the equivalent number of shares (Battle).
- Even sale in return for 98% was thought to carry a 2.5% discount (Battle at 93).
Legislation:
Cases: Battle v. IRC [1980] STC 86;
HMRC manuals:
Commentary:
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Tax avoidance purpose test
The test
-Must be for bona fide commercial reasons
- Must not form part of a scheme or arrangement with a main purpose of avoiding corporation tax, capital gains tax or income tax
Legislation: TCGA s.137; s.139(5)
Cases:
HMRC manuals:
Commentary:
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Bona fide commercial reasons
-Motive irrelevant.
- Bona fide commercial reasons if transaction represents a fair exchange of value.
Legislation:
Cases: Snell v. HMRC [2007] STC 1279; Lloyd v. HMRC [2008] STC (SCD) 681
HMRC manuals:
Commentary:
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Mitigation is not avoidance
- Hallmark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences Parliament intended.
- Hallmark of mitigation is taking advantage of a fiscally attractive option afforded by the legislation and genuinely suffering the economic consequences.
- Choosing the most efficient means of demerger is not generally avoidance.
- Not sufficient to point to relieving provision - must be using rather than mis-using the relieving provision.
- A main purpose of avoiding tax altogether (e.g. by subsequently going non-resident), rather than deferring it is likely to fall foul of the rules.
- Even some deferrals may be objectionable - see Furniss v. Dawson [1984] STC 153.
Legislation:
Cases: IRC v. Willoughby [1997] STC 995; Carvill v. IRC [2000] STC (SCD) 167; Peterson v. CIR [2005] STC 448; Snell v. HMRC [2007] STC 1279.
HMRC manuals:
Commentary: TCCR W1.4.1
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Clearance
- Must fully and accurately disclose all facts and considerations material for the decision, otherwise clearance is void.
Legislation: TCGA s.138; s.139(5)
Cases:
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Commentary:
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CORPORATION TAX
- Close investment holding company always subject to main rate of CT
XX
Legislation:
Cases:
HMRC manuals: CTM60705.
Commentary:
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INHERITANCE TAX
STAMP DUTY
- IHT consequences
- See G1. Disposal of shares.
- May be an associated operation - see B1. Gifts in general.
Legislation:
Cases:
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- Reconstruction relief
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Legislation:
Cases:
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- Partition relief
- Person acquiring control must have held at least 25% interest for previous 3 years.
- Not sufficient that a group acquiring control have, together, held at least 25% interest for 3 years.
Capital reduction demerger
- s.77A relief may be available even if the demerger will result in a change of control of the acquiring company, provided certain conditions are met (STSM042520).
- Person who has held at least 25% of the issued share capital in the target company during the relevant period is excluded when determining whether a disqualifying arrangement exists.
Legislation: FA 1986, s.77A
Cases:
HMRC manuals:
STSM042520 - Exemptions and reliefs: reliefs: Section 77A – Capital Reduction Demergers;
STSM042460 - Exemptions and reliefs: reliefs: Section 77A -Disqualifying arrangements;
Commentary: TCCR W1.3.7
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