Development Securities (no 9) Ltd and ors v HMRC | KPMG | UK

Development Securities (no 9) Ltd and ors v HMRC – FTT decision

Development Securities (no 9) Ltd and ors v HMRC

The case considered whether companies incorporated in Jersey were residents in the UK.

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The Jersey-incorporated companies in this case had entered into call option arrangements with UK group companies to crystallise latent capital losses without losing the benefit of indexation allowance. To be successful, the arrangement required the Jersey-incorporated companies to be tax resident in Jersey for a specific period. HMRC contended that the companies were instead resident in the UK during this period and denied the claims to indexation allowance. The First-tier Tribunal (FTT) has rejected the taxpayer’s appeal, finding that while the Jersey directors considered the proposals in detail, they were acting on the instructions of the UK parent company.

While the FTT disagreed with HMRC’s view, said to be based on HMRC v Smallwood and Another [2010] STC 2045, that the ‘central management and control’ test could be approached as a question of whether there was a ‘scheme of management’ in the UK, it nevertheless found on the facts that the companies’ only business was to acquire the assets under the call option arrangements and that the decision to do so was made in the UK and not at the companies’ board meetings in Jersey.


The FTT appears to have come to this conclusion largely on the basis that the transactions were disadvantageous to the companies themselves, although there was no evidence to suggest that this rendered them void or illegal under Jersey company law and despite acknowledging Chadwick LJ’s remark in Wood v Holden [2006] STC 443 that “Ill-informed or ill-advised decisions taken in the management of a company remain management decisions”. The decision raises some difficult questions as to the present state of the law on company residence and it will be interesting to see whether it is appealed by the taxpayer in due course.

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