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England and Wales Court of Appeal (Civil Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Eastern Power Networks Plc & Ors v Revenue And Customs [2021] EWCA Civ 283 (03 March 2021) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2021/283.html Cite as: [2021] WLR 4742, [2021] STC 568, [2021] EWCA Civ 283, [2021] WLR(D) 136, [2021] BTC 9, [2021] 1 WLR 4742, [2021] STI 1145 |
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ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
(Snowden J and Judge Hellier)
[2019] UKUT 367 (TCC)
Strand, London, WC2A 2LL |
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B e f o r e :
LADY JUSTICE ROSE
and
LORD JUSTICE DINGEMANS
____________________
(1) EASTERN POWER NETWORKS PLC (2) SOUTH EASTERN POWER NETWORKS PLC (3) LONDON POWER NETWORKS PLC (4) UK POWER NETWORKS (TRANSPORT) PLC |
Appellants |
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- and – |
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THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
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David Ewart QC and Marika Lemos (instructed by the General Counsel and solicitor for HM Revenue and Customs) for the Respondents
Hearing dates: 3 and 4 February 2021
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Crown Copyright ©
Covid-19 Protocol: This judgment was handed down remotely by circulation to the parties' representatives by email, release to BAILII and publication on the Courts and Tribunals Judiciary website. The date and time for hand-down is deemed to be 3 March 2021 at 10.30 a.m.
Lady Justice Rose:
The legislation in more detail
"(1) For the purposes of this Part a company is owned by a consortium if—
(a) the company is not a 75% subsidiary of any company, and
(b) at least 75% of the company's ordinary share capital is beneficially owned by other companies each of which beneficially owns at least 5% of that capital.
(2) The other companies each owning at least 5% of the share capital are the members of the consortium for the purposes of this Part.
(3) If—
(a) a trading company is a 90% subsidiary of a holding company and is not a 75% subsidiary of any company apart from the holding company, and
(b) as a result of subsection (1), the holding company is owned by a consortium,
then for the purposes of this Part the trading company is also owned by the consortium."
"(2) Consortium condition 3 is met if—
(a) the claimant company is a trading company or a holding company,
(b) the claimant company is owned by a consortium,
(c) the surrendering company is not a member of the consortium,
(d) the surrendering company is a member of the same group of companies as a third company ("the link company"),
(e) the link company is a member of the consortium, . . . and
(f) the surrendering company and the claimant company are both UK related. . ."
(a) the proportion of the ordinary share capital of the claimant company that is beneficially owned by the link company;
(b) the proportion of any profits available for distribution to equity holders of the claimant company to which the link company is beneficially entitled;
(c) the proportion of any assets of the claimant company available for distribution to such equity holders on a winding up to which the link company would be beneficially entitled; or
(d) the proportion of the voting power in the claimant company that is directly possessed by the link company.
"146B Conditions 1 and 3: claimant company not controlled by surrendering company etc
(1) [dealing with claims based on consortium condition 1]
(2) This section also applies if—
(a) the claimant company makes a claim for group relief based on consortium condition 3, and
(b) during any part of the overlapping period, arrangements within subsection (3) are in place which enable a person to prevent the link company, either alone or together with one or more other companies that are members of the consortium, from controlling the claimant company.
(3) Arrangements are within this subsection if—
(a) the company, either alone or together with one or more other companies that are members of the consortium, would control the claimant company, but for the existence of the arrangements, and
(b) the arrangements form part of a scheme the main purpose, or one of the main purposes, of which is to enable the claimant company to obtain a tax advantage under this Chapter.
(4) The group relief to be given on the claim is to be determined as if the claimant company's total profits for the overlapping period were 50% of what they would be but for this section (see section 140(2) to determine the total profits for the overlapping period)."
""control" means the power of a person ("P") to secure—
(a) by means of the holding of shares or the possession of voting power in relation to that or any other body corporate, or
(b) as a result of any powers conferred by the articles of association or other document regulating that or any other body corporate,
that the affairs of company A are conducted in accordance with P's wishes."
It is accepted by the Appellants that for our purposes 'control' includes having enough votes at the company's general meeting to procure the passing of board resolutions.
The facts
"Save to the extent not permitted by the [Companies] Act, any resolution of the company or the Members shall require a majority of 75% in order to be validly passed."
The judgments below
"232. I have concluded that none of the other issues discussed above provide reasonable grounds for the Respondents to continue with their enquiries which means that this issue: the relevance of purpose, is fundamental to the enquiry. If the applicants' construction of section 146B is correct, purpose is not relevant. If the Respondent's interpretation is correct, purpose is relevant. This is precisely the sort of question which Park J had in mind in Vodafone 2. If the Tribunal decides the question of law, it will determine the application for the closure notice."
"267. I agree with Ms Lemos that the language of section 146B(3)(a) does not require pre-existing control. The purpose of section 146B is to prevent consortia and others implementing arrangements of the prescribed kind which confer a tax advantage. The arrangements may be put in place at the outset, before anyone had any control to lose. The enquiry demanded by section 146B(3)(a) is whether there are arrangements, and if so, whether the consortium would control the claimant if the arrangements were not there."
"If either Eagle or Devin vote with the CKI companies they could pass a resolution. But this does not mean that if both Eagle and Devin vote against the consortium it can be said that the arrangements (the increase in the threshold) have "enabled them to prevent" the CKI companies exercising control because they simply do not have control. That is the position in any company where a shareholder has, or group of shareholders have, a minority interest under the Articles of Association. By definition, they cannot control the company. It is pushing the language of subsection (2) too far to say that the ability of the other shareholders to vote against the minority enables them to prevent the minority from controlling the company."
"71. So, as a matter of ordinary language, we consider that arrangements might be said to prevent a consortium company from "controlling" a company in either of two situations. The first is if the consortium company holds sufficient voting power to pass resolutions under the company's constitution, but the arrangements impose an external constraint upon the exercise of that voting power so that the consortium company cannot be certain that its wishes will prevail. That situation is the one given in the example in paragraphs 50 and 51 above.
72. The second situation is if the arrangements operate internally under the company's constitution so that the voting power of the consortium company is inadequate to assure it of passing the resolutions necessary to give effect to its wishes. In either case it could be said, without doing violence to the statutory language, that the consortium company is prevented from "controlling" the company by its voting power, and that the arrangements enable another person or other persons to prevent it controlling the claimant company.
73. Specifically, and as applied to the instant case, we consider that it is entirely in accordance with the language and structure of s.146B(2)(b) to say that the existence of the 75% Voting Threshold in Article 7.5 enables Eagle and Devin to prevent the CKI companies from having the power to secure that the affairs of UKPNHL are conducted in accordance with their wishes, because even with 74.6% of the voting power, the CKI companies cannot be sure of being able to pass a resolution of UKPNHL."
The appeal
The content of the 'arrangements' in this case
Applying section 146B(3)(a)
"93. … we consider that the statutory wording of s.146B(3)(a) – "but for the existence of" does not invite attention to the process by which the arrangements were put into place, or invite a speculative inquiry into what would have happened if they had not been put in place. The natural reading of the "but for the existence of" test is one that simply requires it to be postulated that the arrangements are not in existence at the relevant time. There is a clear contrast with s.146B(3)(b) which does invite an inquiry into the purposes for which the arrangements were introduced.
94. That conclusion is also consistent with what we understand to be the structure and purpose of the different sub-sections of s.146B. As we have explained, s.146B(2)(b) starts by identifying the type of arrangements which are intended to be caught, and s.146B(3) then limits the scope of that net. In other words, the purpose of the "but for the existence of" test in s.146B(3)(a) is to eliminate from the scope of s.146B a case in which, at the relevant time, there is some reason other than the arrangements in question, which stops the consortium companies from controlling the claimant company."
Applying section 146B(2)(b)
The procedure followed in this application
Lord Justice Dingemans:
Lord Justice David Richards: