The Commissioners for HMRC v Euromoney Institutional Investor Plc

For the second limb of section 137(1) of the Taxation of Chargeable Gains Act 1992, whether an exchange forms part of a scheme or arrangements, and the scope of that scheme or arrangements, are questions of fact. The tribunal must examine the purposes of the scheme or arrangements as a whole. It may consider the purposes of individual steps as evidence, but those purposes are not the statutory question.

The statute does not require identification of every possible candidate scheme, nor does it compel a focus upon a tax-efficient component in isolation. An appellate challenge cannot succeed merely by disagreeing with evaluative factual findings that were open to the fact-finding tribunal.

Euromoney agreed to transfer shares in a joint-venture company to an acquiring company. The consideration initially included cash. Euromoney then negotiated for redeemable preference shares instead of part of that cash, intending to hold them until the substantial shareholdings exemption was available and then procure their redemption.

HMRC contended that section 137(1) of the Taxation of Chargeable Gains Act 1992 disapplied the share-exchange treatment in section 135. The First-tier Tribunal allowed Euromoney’s appeal, holding that the arrangements were to be viewed as a whole and that tax avoidance, although a purpose, was not a main purpose. Its decision is reported as Euromoney Institutional Investor plc v HMRC [2021] UKFTT 61 (TC).

HMRC appealed, alleging an erroneous approach to the scope and purposes of the arrangements. Euromoney’s respondent’s notice challenged the FTT’s findings on purpose and avoidance.

1. Appeal dismissed. The FTT’s decision stood. The Upper Tribunal therefore did not need to decide the points in Euromoney’s respondent’s notice.

2. The second limb of section 137(1) poses two factual questions: whether the exchange forms part of a scheme or arrangements and, if so, what that scheme or those arrangements comprise; and whether avoidance of capital gains tax or corporation tax is a main purpose of the totality of those arrangements. The statutory words are ordinary English words. They impose no further prescribed method of analysis.

3. Snell v HMRC [2007] STC 1279 gave only limited guidance on the second limb. It confirmed that the scheme or arrangements must be considered as a whole, but did not lay down a detailed test for identifying their constituent elements. The FTT was not required to isolate the preference-share element or to identify every possible candidate scheme.

4. It was open to the FTT to find that the relevant arrangements included the entire exchange for ordinary and preference shares, the holding of the preference shares until the exemption became available, and their later redemption. The FTT had made detailed findings about the tax motivation, but was entitled to assess its weight in the context of the commercial transaction as a whole.

5. The FTT had also been entitled to consider the relative size of the anticipated tax advantage, the limited tax analysis undertaken, the failure to identify the tax downside, and the time and expense devoted to the preference-share element. Those matters could rationally support its finding that tax avoidance was a purpose but not a main purpose. Its mistaken reliance on IRC v Brebner [1967] 2 AC 19 was immaterial because that authority concerned a different statutory provision.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal from the FTT was dismissed. The FTT’s decision remained in force.
• First-tier Tribunal (Tax Chamber): Euromoney Institutional Investor plc v HMRC [2021] UKFTT 61 (TC). The FTT held that the tax-avoidance purpose was not a main purpose of the arrangements.