In Cobalt Data Centre 2 & 3 LLP v HMRC EWCA Civ 1422 , the Court of Appeal (CoA) disallowed investors expenditure under the Enterprise Zone scheme. A 'Golden Contract' was said to extend the relief period, however the Court found that the contractual amendments totally changed the original plans and tax relief was denied.
- Developers executed a ‘Golden Contract’ with a Contractor on the last day a site was within an Enterprise Zone in 2006, with the intention of extending the availability of relief.
- This Golden Contract gave a number of specific building options in different specific locations at a number of different prices.
- In 2009 amendments to Golden Contract were made to change the nature and location of the buildings which could be constructed.
- The Cobalt Data Centre LLPs (CDC) was incorporated in January and March 2011.
- CDC executed tripartite agreements with the Developer and Contractor whereby the benefit of the ‘Golden Contract’ was transferred to CDC for consideration of some £153.7m of which £97m had been paid to the Developer for building works.
- CDC claimed relief on the basis that the expenditure was incurred under the Golden Contract and was therefore in time to qualify despite being made some five years after the site ceased to be in the Enterprise Zone.
- HMRC denied relief on the basis that the expenditure was not made under the Golden Contract.
- First and Upper Tribunal decisions were appealed by HMRC to the CoA.
The CoA found that:
- Expenditure had been incurred on the construction of a building at a site that was in an Enterprise Zone.
- However, the expenditure was not incurred under a contract entered into within 10 years of the site's inclusion within that Enterprise Zone as:
- The amendments made to the Golden Contract were severe.
- These changes were beyond the scope of contractual interpretation to be considered part of the original contract as they included:
- A material change to the building that was to be constructed.
- That building was to be built on a different site as had been specified.
- The price paid for construction was materially different.
- CDC’s stated intention that the Golden Contract was amended rather than replaced was not conclusive.
HMRC’s appeal was allowed.
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