In Delinian Limited (formerly Euromoney Institutional Investor PLC) v HMRC [2023] EWCA Civ 1281, the Court of Appeal (CoA) held that although structuring a deal to allow non-payment of tax through the Substantial Shareholdings Exemption (SSE) rules was tax avoidance, it was not one of the main purposes of the transaction so the deferred gain was allowed.

  • Delinian (Euromoney) agreed to sell its shares in Capital Data Limited (Capital) to Diamond Topco Limited (Diamond) for USD$80.44 million, comprising of USD$21 million of cash and the remainder being Ordinary share capital in Diamond.
  • Euromoney subsequently realised that it would be more tax efficient to receive preference shares in Diamond instead of cash. The cash was immediately taxable whereas the preference shares would provide a tax-neutral Share-for-share exchange, as was the case for the ordinary shares.
  • The provisions of s.135 - s.137 of TCGA 1992 which cover share-for-share exchanges, allow for a tax-neutral Reconstruction of shares provided there are bona fide commercial reasons and the avoidance of tax is not one of the main purposes of the arrangements.
  • Redeeming the preference shares 12 months later would be tax-free due to teh avilability of the SSE meaning the heldover gain would not be taxable.
  • The deal was renegotiated and the company tax return was filed on that basis.
  • HMRC disregarded the whole share-for-share exemption and amended the return so that the entire gain was chargeable and issued a Closure Notice.
  • Euromoney appealed to the First Tier Tribunal (FTT), which found that whilst avoiding Corporation Tax on the capital gain was one of the purposes of the arrangements in relation to the preference shares, given the size of the whole deal, it was not one of the main purposes.
  • HMRC appealed to the Upper Tribunal (UT) which confirmed that the arrangements had to be looked at in their entirety. On that basis, as the FTT had found as a fact that tax avoidance was not one of the main purposes, the appeal was dismissed.
  • HMRC appealed to the CoA on the basis that the FTT and the UT had erred in law in not considering the elements of the deal separately. If they had done so, they would have found that the main purpose behind the part of the deal concerning the preference shares was tax avoidance.
  • Euromoney responded with the argument that taking advantage of the tax exemption provided by SSE was not tax avoidance.

The CoA found that:

  • s.137 which imposes the caveats on the operation of s.135 - s.136, is to be interpreted as requiring the whole exchange to be considered for bona fide commercial reasons and also for the avoidance of liability to tax as one of the main purposes.
  • The arrangements cannot be separated for individual scrutiny.
  • s.135 - s.137 TCGA 1992 provide for a tax deferral, not an exemption. If the arrangements lead to a non-payment of tax that would otherwise have been paid, that is tax avoidance.
  • Euromoney deferring the gain by taking preference shares, which then enabled it to use the SSE rules to avoid paying tax altogether, is tax avoidance for the purposes of s.137.
  • Tax avoidance, of itself, does not defeat the deferral of tax, unless it is the main, or one of the main, purposes of the scheme or arrangements.

The appeal was dismissed.

Useful guides on this topic

Euromoney deal was bona fide, not avoidance
In HMRC v Euromoney Institutional Investor PLC [2022] UKUT00205, the Upper Tribunal (UT) confirmed that an ordinary share for redeemable preference share exchange, in amending a prior agreement from a direct shares for cash exchange in a takeover, was undertaken for bona fide commercial reasons, without the main purpose of tax avoidance. Relief under the Reorganisation provisions was available.

Tax avoidance not main purpose of reorganisation
In Euromoney Institutional Investor PLV v HMRC [2021] TC08046, HMRC was unsuccessful in blocking a company's claim for share-for-share relief on a reorganisation, the First Tier Tribunal (FTT) found no main purpose of tax avoidance.

Share-for-share exchanges
How does tax relief for a share-for-share exchange work? What are the rules for an exchange of shares or securities? Are there anti-avoidance rules to consider? Is tax clearance needed?

Reorganisations and reconstructions
What is a company reorganisation or reconstruction? What tax reliefs apply to a company reorganisation, a share for share exchange or a reconstruction?

Substantial Shareholding Exemption (SSE)
What is SSE?  When does SSE apply?

Closure Notices
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights?

External links

Delinian Limited (formerly Euromoney Institutional Investor PLC) v HMRC [2023] EWCA Civ 1281

HMRC v Euromoney Institutional Investor PLC [2022] UKUT00205

Euromoney Institutional Investor PLV v HMRC [2021] TC08046


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