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FTT Finds For HMRC In Corporate Residence Case
Saturday 26th August 2017
The FTT has recently found for HMRC in a case involving three Jersey companies, which had entered into an arrangement designed to crystallise enhanced capital losses, on the basis that central management and control were exercised in the UK.
In Development Securities (No 9) Limited & Othrs [TC06007/2017], the appellants appealed against decisions made by HMRC in October 2014 which denied the appellants the benefit of indexation allowance increasing capital losses on the disposal by the appellant in 2004 of certain assets.
The assets were disposed of as part of the implementation of a plan designed by PwC to enable the property development and investment group of companies of which Development Securities Plc was a member to crystallise latent capital losses on the assets on the basis that indexation would be available which required the Jersey companies to be resident in Jersey when the assets were transferred intra group from the UK group companies.
The Jersey companies were granted options to acquire the assets at original cost plus indexation from the UK companies despite the assets standing at a loss as their values had fallen since original acquisition.
The FTT held in particular that “we find it difficult to see that, in reality, in those circumstances, in agreeing to act as directors as regards a very specific sole project which was inherently uncommercial for the Jersey companies themselves, the Jersey directors were doing anything other than thereby agreeing from the outset to implement the specific steps required to acquire the assets for their client, DS Plc, barring it being found there was any legal impediment for them to do so (although in that case, no doubt the parent would not have wanted to proceed). The question arises as to why directors of a company would agree to undertake a project which is not for the benefit of that company; in this case, the answer can only be that it was because the parent wanted them to do so. If they were not prepared from the outset to undertake the sole, inherently uncommercial act required of them, subject to it being lawful for them to do so, it would be very odd to accept the appointment given the specificity of what was required”.
The FTT concluded that the key decisions to acquire the assets at an overvalue and then to move the control of the Jersey companies back to the UK were taken by DS Plc in the UK. As such, central management and control of the Jersey companies took place in the UK and therefore they were resident in the UK in the relevant period.
For further information on this case please contact Keith Rushen on 0207 486 2378.
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