UK: Tax Resolution Update

Last Updated: 18 November 2008
Article by Liesl Fichardt

HMRC Litigation and Settlement Strategy

The Tax Resolution Group is a key component of our Tax Department. Liesl Fichardt and her colleagues specialise in tax risk assessment and planning, transaction implementation, and tax dispute resolution. I am delighted to introduce this first issue of the Group's "Update".

Since HMRC published their 2007 Litigation and Settlement Strategy, we have seen them increasingly focus on structured tax transactions and the use of anti-avoidance rules. That is the area on which "Update" will principally concentrate.

May I also extend to you a warm welcome to The Tax Resolution Group's Breakfast Briefing on 29 October 2008, when Sir Stephen Oliver, QC will discuss the new Tax Tribunal. The new regime will change the landscape of tax litigation. Details appear below.

Michael Wistow, Head of Tax

Update on HMRC Challenges

Prudential1 - Guidance on "unallowable purpose" deferred - transaction implementation is key

Prudential - argued in the High Court in July 2008 - concerned a complex tax structure including two swap transactions designed to secure a tax advantage under the provisions of Finance Act 1994. The issue was whether the "swaps" were "qualifying payments" within the meaning of Sections 151 and 153 of Finance Act 1994.

The case was widely expected to answer some of the many questions surrounding the "unallowable purpose" anti-avoidance rule, on which HMRC placed much weight. However, after a close analysis of the facts, the court decided in favour of HMRC on purely technical grounds, holding that, as carried into effect, the transaction, did not meet the statutory requirements for tax relief - i.e. the "swaps" were not "qualifying payments".

The court concluded that the nature of the payments implementing the transaction did not conform with the requirements of the relevant tax legislation. The court did not consider the purpose of the transaction and did not find it necessary to decide that the agreement was a sham. As a result Prudential sets no precedent for the "unallowable purpose" attack raised by HMRC.


In Astall the High Court considered specific arrangements and whether a security was a "relevant discounted security" under paragraph 3 of Schedule 13 of the Finance Act 1996. Again, the court closely analysed the facts as found by the Special Commissioners and held that the Commissioners' decision finding in favour of HMRC - that the security was not a "relevant discounted security" - could not be faulted.

The court confirmed the three stage approach to the interpretation of the tax legislation in an avoidance context. First, consider the statutory language and interpret it "purposively". Next, carefully analyse the facts. Last, consider whether the facts, as analysed, fall within the language of the taxing statute as construed.

Both Prudential and Astall emphasise that it is critical to take full account of the economic and commercial reality of transactions in their technical analysis and practical implementation.

Vodafone 2 3

Vodafone 2 was a significant victory for the taxpayer. Following Cadbury Schweppes 4, the High Court decided that the UK controlled foreign company (CFC) rules breached Community law and that the CFC rules should simply be disapplied.

There is an interesting practical point to note. In this case the taxpayer requested a closure notice following a notice of enquiry, on the basis that the CFC rules breach Community law. As a result, the court only considered the legal issues involved and not the underlying facts.

Liesl Fichardt, Tax Resolution

Berwin Leighton Paisner Event - The New Tax Tribunal - Breakfast with Sir Stephen Oliver, QC on 29 October 2008

Sir Stephen, Presiding Special Commissioner and President of the VAT and Duties Tribunal, has been closely involved in the far-reaching changes which will result in the creation of a new Tax Tribunal to replace both the Special and the General Commissioners.

Berwin Leighton Paisner will host a briefing on 29 October 2008 at 8:00am for 8:30am to 10:00am, at which Sir Stephen will discuss authoritatively the structure of the new tribunal system, its implications and future developments. Please join us for breakfast and an interesting discussion. Kindly e-mail to confirm your attendance.


1. Prudential Plc v Revenue and Customs Commissioners [2008] EWHL 1839 (Ch).

2. Astall v Revenue and Customs Commissioners [2008] EWHC 1471 (Ch).

3.Vodafone 2 v Revenue and Customs Commissioners [2008] EWHC 1569 (Ch).

4. Cadbury Schweppes Plc v IRC (C-196/04) [2007] Ch. 30 ECJ.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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