Inmarsat Global Limited v The Commissioners for HMRC

A statutory fiction must be construed according to its purpose and applied only so far as necessary to achieve that purpose. Section 78(1) of the Capital Allowances Act 1990 deems a valuation sale when property passes from a predecessor to a successor without an actual sale. It does not, without more, deem ownership to have passed to the successor.

Accordingly, a successor cannot claim capital allowances under section 24 where it never owned the relevant plant and no separate provision deems it to belong to the successor. Expenditure on transport or installation may constitute expenditure on the provision of plant, even without leading towards ownership, but the separate ownership requirements remain essential.

International Maritime Satellite Organisation incurred launch costs for six satellites used in its telecommunications trade. The satellites were owned by finance lessors and leased to IMSO. Inmarsat later acquired IMSO’s business and succeeded to its trade, but never acquired ownership of the satellites.

Inmarsat claimed writing-down allowances on the launch costs under sections 61(4) and 78 of the Capital Allowances Act 1990. The First-tier Tribunal decided for HMRC. The Upper Tribunal dismissed Inmarsat’s appeal, holding that section 78 did not apply unless Inmarsat became the owner of the satellites: [2021] UKUT 59 (TCC). The central issue was whether the statutory deeming provision transferred ownership as well as determining value.

1. Appeal dismissed. Lord Justice Newey gave the leading judgment. Lady Justice Whipple agreed, and Lord Justice Underhill agreed with both judgments.
2. Section 78(1). The provision has a valuation function. It treats property used by the predecessor and successor as if it had been sold to the successor, with the price fixed by open-market value. It does not deem the predecessor to have owned property which it never owned, nor does it deem the successor to have acquired ownership. The absence of provisions addressing the duration of any deemed ownership and the calculation of later disposal values supported that construction.
3. The conclusion was consistent with the principles concerning statutory deeming provisions stated in [2020] UKSC 22. The court must identify the statutory purpose and apply the fiction no further than that purpose requires. The fact that a sale normally transfers title did not make the transfer of title an inevitable corollary of section 78(1). Since Inmarsat never owned the satellites, section 24(1)(b) was not satisfied.
4. Section 61(4): provision of plant. Although unnecessary to the result, the court agreed with the Upper Tribunal that launch costs could be expenditure on the provision of plant. The statutory concept is not confined to acquisition costs and may include expenditure facilitating provision, such as transport or installation. It does not require expenditure to lead towards ownership. The separate belonging condition remains necessary.
5. Requirement to provide and timing. The court disagreed with the Upper Tribunal on the I-3 satellites. Clause 7.03 of the master lease agreement did not require IMSO to procure their launch. Even if operative before delivery, the general obligations under the Convention did not make launch the only course consistent with IMSO’s purposes or sound financial operation. The court agreed with the Upper Tribunal that section 61(4) could potentially apply to expenditure incurred before the lease term began, provided the term had subsequently begun. Section 61(3) was not in issue, and the court declined to determine the effect of the tailpiece on novation.

1. Court of Appeal (Civil Division): dismissed Inmarsat’s appeal. Section 78(1) did not deem ownership of the satellites to pass to Inmarsat.
2. Upper Tribunal (Tax and Chancery Chamber): dismissed Inmarsat’s appeal from the First-tier Tribunal: [2021] UKUT 59 (TCC).
3. First-tier Tribunal: decided the capital-allowance question in favour of HMRC.