UT (Tax & Chancery) UT/2023/000062 - [2024] UKUT 00273 (TCC)

HMRC argued that, even if the appellants were correct in their case that s1259 did not extend to the related party provisions then, in respect of accounting periods commencing or deemed to commence on or after 25 November 2015 the related party condition was not satisfied because of amendments extending the definition of “related party” brought in by the FA 2016.

Section 52 FA 2016 provides so far as relevant as follows:

“Intangible fixed assets: pre-FA 2002 assets

(1)

Chapter 16 of Part 8 of CTA 2009 (pre-FA 2002 assets) is amended as follows.

(2)

In section 882 (application of Part 8 to assets created or acquired on or after 1 April 2002), after subsection (5) insert—

‘(5A) References in this section to one person being (or not being) a related party in relation to another person are to be read as including references to the participation condition being met (or, as the case may be, not met) as between those persons.

(5B) References in subsection (5A) to a person include a firm in a case where, for section 1259 purposes, references in this section to a company are read as references to the firm.

(5C) In subsection (5B) “section 1259 purposes” means the purposes of determining under section 1259 the amount of profits or losses to be allocated to a partner in a firm.

(5D) Section 148 of TIOPA 2010 (when the participation condition is met) applies for the purposes of subsection (5A) as it applies for the purposes of section 147(1)(b) of TIOPA 2010.’

…

The amendment thus extends the definition of “related party” by reference to the “participation condition” in TIOPA 2010 (the Taxation (International and Other Provisions) Act 2010). We do not set that out as it is not in dispute that the appellants would, as regards the relevant accounting periods, breach the extended “related party” exception because the same company, TM Dairy, was directly or indirectly participating in the management control or capital of the relevant Corporate Member and LLP. That acceptance is subject however to HMRC succeeding, as the FTT held it did, on two prior issues of interpretation.