[2024] UKUT 00152 (TCC)

HMRC also submitted that there are specific errors of law concerning the way in which the FTT determined BLM’s purpose in entering into the Assignment.

First, HMRC say that the FTT was wrong to conclude at [176] that its finding that the “sole” purpose of BLM in acquiring the SAAD Claim was to realise a profit was an answer to HMRC’s case. The FTT failed to recognise that the profit was entirely dependent on BLM taking advantage of the treaty. There was no separate commercial purpose.

This seems to us to be just another way of making the points relied on by HMRC under Ground 2. It was evident that the FTT knew that the only way in which BLM could make a profit was if Article 12(1) applied. The FTT’s evaluative judgment was that Article 12(1) of the treaty was the setting in which the Assignment took place. BLM was not seeking to abuse the UK-Ireland treaty. On the contrary, it expected that, as the beneficial owner of the interest, the treaty would apply to it in the normal way so that the interest fell to be taxed in Ireland rather than the UK.

Second, HMRC say that the FTT at [177(2)] misunderstood the reason why HMRC was seeking to rely on Article 12(5):

HMRC say that they were not concerned with the “significance” or otherwise of the spread. However, we do not consider that [177(2)] shows any misunderstanding. The Decision, read as a whole, shows that the FTT clearly understood HMRC’s case. In [177(2)], the FTT was simply recognising that SICL was sharing in the saving of UK WHT.

HMRC also say that the FTT wrongly inferred at [179] that HMRC would not have sought to apply Article 12(5) if BLM had acquired the SAAD Claim for 80% of the interest rather than 92%:

HMRC say that they would have challenged such a case as much as the actual transaction. In their view, the only difference would have been the amounts of income (and profits) realised by BLM and SICL. In the assumed case, BLM would simply have obtained all of the UK WHT saving.

In our view, the FTT was at [179] simply making the point that, in a case in which BLM acquired the SAAD Claim for no more than 80% of the interest, it could be assumed that SICL was not concerned with UK WHT and that there would therefore be no sharing of UK WHT between the parties. In the case of this assumed transaction, SICL would merely be eliminating the late termination and liquidation lacuna risks and putting itself in exactly the same position it would have been in if it had received the Post-Administration Interest under deduction of UK WHT. From BLM’s perspective, it would have made a greater profit than it did as a result of the actual transaction. In both transactions (the actual and the assumed), BLM would make a profit, and we understand the FTT’s point to be that the making of a smaller profit (the actual transaction) could not be more objectionable than the making of a bigger profit (the assumed transaction).

Perhaps the FTT’s point was imperfectly expressed. We consider that it would have been better if the FTT had not engaged in speculation about what HMRC might, or might not, have done in relation to an assumed transaction. That is particularly so when the assumed transaction was, on the facts found by the FTT, most unlikely to have taken place. Nonetheless, the core point made by the FTT does not seem to involve any error of law. The FTT was simply testing the logic of HMRC’s case as they saw it.

In any event, we do not consider that the FTT’s having regard to the assumed transaction in the way in which it did affected in a material way its evaluative finding. Despite the way in which it expressed itself at [178] (which might appear to suggest that the reasoning for its view that BLM did not have a main purpose would be found only in [179] to [181]), we regard the core of the FTT’s reasoning to be found at [173] to [176], namely that the availability of Article 12(1) was merely part of the scenery.

HMRC’s third criticism of the Decision was that the FTT incorrectly placed “significant” reliance on the fact that HMRC had not sought to apply Article 12(5) in relation to any of BLM’s earlier purchases of LBIE claims. At [180] the FTT said that HMRC had “quite rightly” accepted that the other LBIE claims were not subject to Article 12(5) and that, having done so, HMRC must “logically accept” that the same must hold true for the SAAD Claim.

We agree with HMRC that the FTT was not in a position to come to any formal findings in relation to any of the earlier LBIE claims. Although there was some evidence in relation to those claims before the FTT, the FTT was not being asked to come to any decision in relation to any of them. Still less could it have come to a view on whether HMRC was right not to pursue any challenge in relation to any of the earlier LBIE claims.

We also agree with HMRC that, in any event, the tax treatment of the earlier LBIE claims could not, in and by itself, determine the outcome of this appeal.

However, it was open to the FTT to regard the prior transactions as relevant in the sense that they were part of the factual matrix in which the Assignment occurred (see [161]). The FTT’s point at [180], understood in the context of the Decision as a whole, was that BLM had acquired a great many other LBIE claims clearly expecting to benefit from Article 12(1) in circumstances where, as a matter of fact, they did then benefit from that provision. The FTT made at the end of [180] the same point about BLM taking account of Article 12(1) as part of the scenery as it had in relation to the SAAD Claim:

The FTT recognised at [181] that there were differences between the earlier LBIE claims and the SAAD Claim. However, it concluded that those differences did not mark out the SAAD Claim as exceptional:

We consider that the FTT was entitled to come to the view that it expressed at [181]. So far as BLM was concerned, UK tax was never an issue that concerned it. On the contrary, it was precisely because it considered that it could rely on its treaty rights that it could offer the price that it did for the Assignment. It is true that it was aware that SICL had a UK tax concern and that was why it wanted to assign the SAAD Claim but the FTT’s point was simply that, from BLM’s perspective, it regarded its beneficial ownership of the interest in respect of the SAAD Claim in the same way as it regarded its beneficial ownership of all the other interest in respect of all the other debt claims in the LBIE administration. That was a relevant matter. Its weight was for the FTT to determine.

The FTT’s core conclusion was that for BLM the existence of the UK-Ireland treaty was simply the setting in which the Assignment took place. The FTT could not find anything abusive in BLM, as an Irish resident company which beneficially owned the interest, taking the benefit of Article 12(1) of the UK-Ireland treaty. It was Ireland who had full taxing rights over the interest beneficially owned by BLM. BLM assumed that those taxing rights would be engaged. Accordingly, it approached the purchase of the SAAD Claim on that basis. That was a determination that was open to the FTT and cannot, in our view, be said to have been reached on a flawed basis.

None of the points raised in Ground 3 undermine the cogency of the FTT’s conclusions and we dismiss Ground 3 of HMRC’s appeal.