UT/2023/000055 - [2025] UKUT 00028 (TCC)

The facts of Coconut UT also concerned the CHF Group but a different SPV for a different pre-school animation concept (Coconut Bay). The SPV, Coconut Animated Island Limited, was assigned IP rights in the show by the show’s originator and the company entered into a production services agreement with Entertainment under which Entertainment agreed to provide production services in return for payments. HMRC refused authorisation of the issue of compliance certificates in relation to certain issues by the SPV of B ordinary shares. The question arose there as to whether Entertainment was a “party to” the arrangements. (While the case concerned SEIS shares both parties accept the relevant legislative provisions were materially the same as for EIS shares.)

Many of the arguments made corresponded in large part to the arguments made before us under Grounds 1 and 2, namely that the natural meaning of “party” was analogous to a party to a contract, and that while Entertainment and others in the CHF Group were “involved” in the arrangements they were not “party” to them. It was also argued the FTT erred in not attempting to define what being a “party” to arrangements meant, instead subsuming that question into the broader question of the meaning of “arrangements”.

The UT identified (at [43]) the two issues for it to resolve as, first the scope of any “arrangements”, and second whether Entertainment was a “party” to the arrangements. The UT noted authority from other areas (the settlement provisions) in Crossland v Hawkins [1961] Ch 537regarding the need for the arrangements to have “sufficient unity” but also (from Jones v Garnett [2007] UKHL 35 (at [50]) that the scope of arrangements could “…only be answered by reference to the context in which the term [was] used and the facts and circumstances of the particular case”. The UT considered the arrangements entailed having a particular purpose describing that as a “plan”.

Applying that to the facts of the case before it, the UT considered the plan was that as set out in the Information Memorandum to the investors and encompassed the incorporation of the SPV, issue of shares to a nominee company to hold them for the benefit of investors, and the acquisition of the IP rights. The UT went on to reject the appellant’s case there that the PSA was not part of that plan noting the FTT’s finding in Coconut FTT that at the time of the issue of the shares there was an oral agreement which had formed the basis for the PSA (the UT had earlier concluded the arrangement had to exist or be in contemplation at the time the relevant shares were issued).

As for its analysis of the words “party to”, the UT took a similar contextual approach to that that it had taken in respect of “arrangements” noting (at [53]) that:

“…whether a person should be regarded as a ‘party’ to the arrangements should be determined by reference to the context in which the term is used and the facts and circumstances of the case, which include the arrangements in the form that we have described above.”

Responding to the appellant’s submission that a person had to be more than just involved and that the person needed to have some control the UT said (at [54]):

“We can understand that, in an appropriate case, a distinction might need to be made between a person who was directly involved in the making of the arrangements – that is, in formulating the plan – and a person who was more peripherally involved – such as a person who becomes involved in a transaction that is contemplated by the arrangements, but played no part in devising them.

For example, if arrangements involved the possibility that, at some stage in the future, an asset might be sold to a third party or an agreement might be reached with a third-party for the provision of services, the third-party purchaser or supplier, who is unaware of the purpose of the arrangements, might not be regarded as a party to arrangements at the time that they are planned and first implemented. However, that is not the case here. We do not need to decide whether a person in such circumstances would be a party or not and we do not do so.”

The UT continued (at [55]):

“We think, however, that Ms Brown’s approach [Ms Brown also appeared for the taxpayer in Coconut UT] is too narrow. The question as to who should be regarded as a ‘party’ to the arrangements has to be determined by reference to the context. In the context of section 257CF, as we have described, the relevant arrangements must possess two features: they have to exist or to be in contemplation at the time at which the shares are issued or when the proceeds of the share issue are spent; and they have to have a particular purpose. In our view, a person can be regarded as a ‘party’ to arrangements that fall within section 257CF if, at the relevant time, they have sufficient involvement in the arrangements that it is appropriate to treat them as participating in that purpose. The relevant degree of involvement depends on the circumstances, but may be wider than being directly involved in devising the arrangements.” (emphasis added)