Tax Resolution Update

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


- 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...

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