[2024] UKUT 00319 (TCC)

Redevco, which owned a portfolio of retail estate investments, was incorporated in the UK and, until 15 January 2008, was resident solely in the UK for tax purposes. It is a member of a corporate group, the origins of which can be traced to the C&A fashion retail stores founded in the Netherlands in 1841. COFRA Holding AG ("COFRA") is the ultimate parent company of that group.

The C&A stores began trading in the UK in the early 1920s. Stores were opened throughout the UK, and C&A companies bought properties (in the main either as freeholds or on long leases) as the business expanded. The properties acquired were mostly retail stores but also included storage facilities and office accommodation held by local UK subsidiaries which the stores occupied under licence arrangements. In 2000, although it continues to be a major retail chain throughout much of Europe, it was decided to close the C&A stores in the UK due to their poor performance.

Between 1999 and 2002 the business of the group was reorganised and COFRA (which is resident in Switzerland) was introduced as the ultimate parent company. The group’s business consisted of a fashion retail division trading under the “C&A” name, a property investment management division, Redevco Properties Holding BV (“Holding”), with its managerial headquarters in the Netherlands, and (from around 2002) a private equity investment division known as “Bregal”.

The former C&A properties in the UK remained in the ownership of the original subsidiaries, whose shares were transferred to a UK intermediate holding company, UK Redevco Properties, a private unlimited company incorporated in England and Wales whose parent was Holding in the Netherlands. New tenants were found where vacancies had arisen due to the closure of the C&A stores. Those properties in the less attractive or secondary locations were sold so that UK Redevco Properties could focus on developing and acquiring properties in prime locations.

The incorporation of Redevco, on 16 November 2004, was part of an asset-backed securitisation undertaken by Holding which sought to raise capital to invest in the expansion of its property investment business in the UK by releasing value from its existing portfolio of mostly prime retail properties.

In late 2006 the management of Holding started to consider whether it was feasible to transfer the management of Redevco to the Netherlands in order better to co-ordinate its management with that of the group and, in particular, with that of the securitised sub-group of which it was the only member managed outside the Netherlands. As part of that process advice was sought from leading counsel as to whether the UK would be able to impose an exit tax charge on Redevco’s migration. Counsel advised that:

On the basis of the advice received (in the words of a former Redevco director) that “there was a very good chance of succeeding in arguing that the tax was not due”, Redevco decided to move its place of effective management to the Netherlands.

The FTT found that:

On 31 October 2007 Redevco notified HMRC pursuant to s130 FA 88 of its intention to migrate. In the initial notification Redevco set out its view that no exit tax was due because it was “invalid under European Community law”. Following the provision of an adequate guarantee from another UK resident group company and a power of attorney to the UK resident legal counsel, HMRC granted consent to the migration.

On 15 January 2008, Redevco moved its place of effective management to the Netherlands, thereby ceasing to be resident for tax purposes in the UK.

On 22 March 2011 Redevco sold all of the relevant properties to another group company.

In December 2010, HMRC opened an enquiry into Redevco’s corporation tax return for the accounting period ended 15 January 2008. On 2 August 2021 HMRC issued a final closure notice. The relevant parts of the closure notice determined that Redevco was liable to corporation tax in respect of: (a) chargeable gains of £139,700,000 arising under s185 TCGA and (b) profits on loan relationships of £2,700,114 arising under para 10A.