Court of Appeal decision in Bristol and West PLC case | KPMG | UK

Court of Appeal decision in Bristol and West PLC case

Court of Appeal decision in Bristol and West PLC case

HMRC have been successful in this case on the intra-group transfer rule for derivatives and a procedural issue regarding closure notices.


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In the case of HM Revenue and Customs v Bristol and West Plc [2016] EWCA Civ 397, the Court of Appeal upheld an appeal by HMRC concerning the validity of closure notices favourable to the taxpayer which had been issued in error, and refused an appeal by the taxpayer in relation to an arrangement which was intended to generate a transitional advantage on the introduction of a new regime for the taxation of derivatives.

The two issues were as follows.

  • With respect to the closure notices that had been issued in error, an email was sent to the taxpayer explaining the error before the closure notices were posted and less favourable replacement notices were issued in due course. The Court of Appeal held that the original closure notices were not valid. As a result, HMRC were entitled to challenge the treatment of the intra-group transfer of interest swap contracts.
  • The taxpayer was unsuccessful in an appeal regarding the application of the intra-group transfer rule for derivative contracts. In 2003, a portfolio of interest swap contracts was novated between two group companies which had different year ends. The transferor company was within what is now the derivatives contracts regime (in Part 7 CTA 2009) and the transferee company was within the predecessor regime. It was claimed that an intra-group transfer rule in the derivatives contracts regime applied to the transferor such that the £91 million consideration received was not taxable but the transferee company was entitled to treat the consideration paid as the cost of the contracts. This would mean that only subsequent gains would be taxable and that the consideration of £91 million would not be taxable in either company. The Court’s interpretation of the intra-group transfer rule was that it could only apply to the transferor if it also applied to the transferee. This requirement was not satisfied, and so it followed that the intra-group transfer rule did not apply. The transferor was therefore taxable on the consideration received. The technical point is now of limited interest but the approach to interpretation is of wider interest.

The full text of the decision can be found here.


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