Global

Details

  • Service: Tax, International Corporate Tax, Global Indirect Tax, International Executive Services, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 11/2/2012

United Kingdom - Capital gain is taxable, despite tax planning 

November 2: The Upper Tribunal issued its decision in a corporation tax case finding that tax planning involving derivative contracts in 2001 and 2002 was ineffective to shelter capital gain realized on the sale of shares. Explainaway Limited v. HMRC, FTC/72/2011 & FTC/79/2011 (19 October 2012)

Read the decision: Explainaway [PDF 87 KB]

Summary of case

A chargeable gain arose on the sale of shares in 2001, and tax planning was undertaken to defer the capital gain to the following period and then shelter the gain.


The Upper Tribunal found that the planning undertaken in 2001 and 2002 was ineffective (partly based on the Ramsay principle). The Tribunal decided that a pair of contracts was self-cancelling, with no commercial purpose, and could be disregarded, leaving the gain on the original share disposal as taxable.


The Tribunal’s decision is consistent with a line of cases in which linking transactions to external markets was found not to be sufficient to prevent Ramsay-type principles from applying.

KPMG observation

The original First Tier Tribunal decision in this case was of interest because that court held that a borrowing undertaken to finance the tax planning had an unallowable purpose, so that the cost of the borrowing was not deductable. However, this aspect of the decision was not appealed by the taxpayer. Although a First Tier Tribunal decision is not binding, this aspect is now effectively final and, as such, may well be referred to by HMRC to support its arguments in other cases.

Other recent topics

Read a November 2012 report [PDF 185 KB] prepared by the KPMG member firm in the UK: Weekly Tax Matters (November 2)


Other topics discussed in the KPMG report include:


  • An EC reasoned opinion concerning UK inheritance taxation of spouses
  • A consultation concerning a landfill tax for Scotland
  • Various value added tax (VAT) cases



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