Upper Tribunal Tax and Chancery Chamber

[2024] UKUT 00152 (TCC)

Fecha: 21-Feb-2024

The FTT’s factual findings as to the knowledge of BLM and SICL

The FTT’s factual findings as to the knowledge of BLM and SICL

25.

The FTT made the following findings as to the state of BLM’s knowledge:

(1)

BLM knew, at the time of the Assignment, that in the absence of a sale the value of the SAAD Claim to SICL was approximately 80% of the amount of Post-Administration Interest payable on it and that therefore SICL would be seeking to achieve the best price that it could in excess of that figure ([164(1)]). That was for the reasons set out above: the UK WHT would represent an absolute cost to SICL. The reason the FTT described the value as “approximately” 80% was because, in addition to the withholding tax risk, there was the liquidation lacuna risk and the late termination risk.

(2)

BLM knew, at the time of the Assignment, that the value of the SAAD Claim to it was approximately 100% of the amount of Post-Administration Interest. That was because BLM was aware that it could seek repayment from HMRC of the amount of any UK WHT deducted ([164(3)]. The word “approximately” was used because of the presence of the liquidation lacuna and late termination risks.

(3)

BLM knew that its exposure to the liquidation lacuna risk and late termination risk was no different in scale from SICL’s exposure to those risks ([164(2)]).

(4)

BLM knew that there could be other potential bidders who could expect to reclaim the UK WHT or would not be subject to UK tax on the Post-Administration Interest and who would therefore value the SAAD Claim at approximately 100% of that interest. It therefore knew that it had to offer a realistic price ([164(3)].

(5)

At [164(4)], the FTT decided that BLM took into account the following factors in the following order when setting the price it was prepared to offer:

(a)

first, and, in the FTT’s view, most importantly, the quantum and timing of the expected cash flows from the SAAD Claim;

(b)

second, its need to obtain an annual return of 10% on assets that it purchased;

(c)

third, its appraisal of the risk of loss if the late termination risk materialised; and

(d)

finally, its appraisal of the price which SICL would be likely to accept bearing in mind that (i) if SICL had retained the SAAD Claim, it would obtain only 80% of the Post-Administration Interest because of the UK WHT risk (assuming that the Court of Appeal’s decision on the application of UK WHT was not reversed by the Supreme Court), and (ii) BLM was not the only potential bidder for the SAAD Claim.

26.

The FTT’s reasoning at [164(4)] also made it clear that BLM realised that, even though SICL could only expect to retain 80% of the Post-Administration Interest if it did not sell the SAAD Claim, BLM nevertheless needed to offer a price that was more than 80% of that interest. That was because of the presence of other potential purchasers who would not be subject to the withholding tax and so could offer more than 80%: for example, companies benefiting from other treaties, UK resident companies with losses to offset against the income or exempt investors such as pension funds. It follows from this that the FTT’s finding was that BLM determined its bid by assuming that SICL would transfer the SAAD Claim to someone for whom UK WHT would not be an absolute cost. Accordingly, BLM needed to pitch its offer attractively so that SICL did not ask Jefferies to market the SAAD Claim more widely.

27.

A further consequence of the FTT’s finding is that BLM would have realised that it could only make a profit on the transaction if it obtained the benefit of Article 12(1) of the UK-Ireland treaty.

28.

The FTT made the following findings as to the state of SICL’s knowledge:

(1)

SICL knew that the value of the SAAD Claim to it was approximately 80% of the Post-Administration Interest because UK WHT would represent an absolute cost to it ([165(1)].

(2)

SICL knew that there were people in the market for whom UK WHT would not be an absolute cost and who would therefore be able to offer a purchase price for the SAAD Claim greater than its value to SICL ([165(2)].

(3)

SICL was seeking to achieve the greatest possible price for the SAAD Claim bearing in mind the potential market [165(3)].

(4)

When the parties agreed the commercial terms of the Assignment on 8 February 2018, SICL did not know, and did not care about, the identity of the purchaser [165(4)]. On 8 February 2018, SICL could infer from the price it had been offered that the successful bidder must have been entitled to some kind of exemption from UK WHT but it did not know that the successful bidder would be entitled to the benefit of Article 12(1) of the UK-Ireland treaty ([188] and [192(2)]).

(5)

Once the commercial terms were agreed, SICL considered itself “morally bound” to proceed with the Assignment.

(6)

After agreeing the commercial terms, SICL took steps to ascertain the identity of the purchaser of the SAAD Claim. However, it did not do so with a view to ascertaining the location of BLM’s tax residence since, wherever the purchaser was resident, SICL by then considered itself morally bound to assign the SAAD Claim.

(7)

On 12 February 2018, when it entered into a binding agreement to transfer the SAAD Claim, SICL knew that the purchaser was BLM and that BLM was resident in Ireland for the purposes of the treaty.