Upper Tribunal Tax and Chancery Chamber

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

Fecha: 17-Oct-2024

Grounds 1 and 2 – interpretation and application of “party to”

Grounds 1 and 2 – interpretation and application of “party to”

13.

These grounds centre on the meaning of the words “party to” which operates within the following “disqualifying arrangements” provision, s178A ITA 2007 which provides so far as relevant:

(1)

The relevant shares must not be issued, nor any money raised by the issue employed, in consequence or anticipation of, or otherwise in connection with, disqualifying arrangements.

(2)

Arrangements are “disqualifying arrangements” if—

(a)

the main purpose, or one of the main purposes, of the arrangements is to secure—

(i)

that a qualifying business activity is or will be carried on by the issuing company or a qualifying 90% subsidiary of that company, and

(ii)

that one or more persons (whether or not including any party to the arrangements) may obtain relevant tax relief in respect of shares issued by the issuing company which raise money for the purposes of that activity or that such shares may comprise part of the qualifying holdings of a VCT,

(b)

that activity is the relevant qualifying business activity, and

(c)

one or both of conditions A and B are met.

(3)

Condition A is that, as a (direct or indirect) result of the money raised by the issue of the relevant shares being employed as required by section 175, an amount representing the whole or the majority of the amount raised is, in the course of the arrangements, paid to or for the benefit of a relevant person or relevant persons….

…

(6)

In this section… “relevant person” means a person who is a party to the arrangements or a person connected with such a party”

14.

There is no dispute Hoopla satisfied the purpose test set out in s178A(2)(a).

15.

Hoopla’s overall argument is that the FTT (and the UT in Coconut) failed to understand the words “party to” the arrangements spoke to an additional requirement to the presence of “arrangements” and that such requirement should in the light of the scheme not be interpreted too broadly so as to pull in more arrangements and participants into the scope of the disqualifying arrangements. Hoopla accepts that the Upper Tribunal in Coconut has considered these provisions, but submits it overlooked the relevant statutory and factual context. To that extent Hoopla argues we should depart from the earlier UT’s analysis.

16.

Coconut UT addressed various points of interpretation in relation to Condition A including the meaning of “party to” in relation to a similar special purpose vehicle that had been set up to exploit IP in a children’s show. It is convenient to look at that decision first to understand Hoopla’s arguments on statutory interpretation and why it is said we should depart from it. (The FTT did not have benefit of this, but was able to refer to the decision of the FTT (Footnote: ¹) (“Coconut FTT”) which was subsequently upheld on appeal by Coconut UT.)