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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: https://www.bailii.org/ew/cases/EWCA/Civ/2021/283.html Cite as: [2021] BTC 9, [2021] WLR 4742, [2021] STI 1145, [2021] 1 WLR 4742, [2021] STC 568, [2021] WLR(D) 136, [2021] EWCA Civ 283 |
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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 |
____________________
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
____________________
VERSION
OF JUDGMENT APPROVED
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:
powers
set out in Part IV of Schedule 18 to the Finance Act 1998 and relate to claims made by the Applicants for consortium relief. HMRC have asked for a great deal of information and numerous documents in the course of the enquiries. The Appellants have already provided them with much but not all of what they were asked for. HMRC have issued formal information notices pursuant to Schedule 36 to the Finance Act 2008. Those information notices have been challenged by the Appellants but we were told that those proceedings have been stayed pending the resolution of this appeal.
votes
that the link company has as a result of its shareholding in the claimant company. In other words, the more
votes
that the link company can exercise at a general meeting of the shareholders of the claimant company, the more of the claimant company's profits can be offset by the surrendering company's losses
via
the link company, if that is the lowest of the possible ownership proportions.
votes
as its lowest ownership proportion, there is therefore an incentive for the link company to hold as high a proportion of
votes
at the claimant company's general meetings as possible. But usually that high level of
votes
would give the link company control over the affairs of the claimant company. The other shareholders in the claimant company might not want the link company to have that level of control, so they may put in place a scheme whereby even though the link company has a high proportion of
votes
(maximising the amount of loss relief the claimant company can claim), it does not have enough
votes
to control the claimant company. The statutory provisions in issue here are designed to stop that kind of scheme where the purpose of the scheme is to maximise the tax advantage provided by the consortium relief. The question to which HMRC's enquiries are directed is whether there is a scheme here caught by this anti-avoidance provision. The Appellants say that it is clear if the statutory provisions are properly construed that there is no such scheme and they are entitled to the consortium relief that they claimed in their corporation tax returns. They say that there is nothing further that HMRC need investigate and HMRC should be directed to issue closure notices to bring their enquiries to an end. HMRC say that there is one condition for the availability of consortium relief that they have not yet finished investigating. That element is the purpose for which certain steps were taken by the Appellants - steps which HMRC say may constitute a scheme that falls foul of the anti-avoidance provision. They want to continue investigating this and they therefore contend that there should be no closure notice issued.
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.
voting
power
in the claimant company which is directly owned by the link companies. That fourth option was added to section 144(3) by the Finance (No 3) Act 2010 but was in force for all the accounting periods with which we are concerned. It was added at the same time as section 146B which is at the heart of this appeal. Section 146B sets a further limitation on the amount of consortium relief that can be claimed. So far as is relevant it provides:
"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 thepower
of a person ("P") to secure—
(a) by means of the holding of shares or the possession ofvoting
![]()
power
in relation to that or any other body corporate, or
(b) as a result of anypowers
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
Power
Networks Holdings Ltd ('UKPNHL'). They are therefore treated as also being owned by the consortium by
virtue
of section 153(3) CTA. They have earned profits during the periods covered by HMRC's enquiry, that is in the years ended December 2011, 2012 and 2013 and claimed in their tax returns to offset some of those profits using consortium relief relying on consortium condition 3.
vehicle
by three independent, though inter-related, investors for the purpose of acquiring the
power
transmission services business previously owned by the EDF Energy Group. The investors were the Hutchison Whampoa group which is a Hong Kong-based international group listed on the Hong Kong stock exchange, Cheung Kong Infrastructure (which owns the company known at the time as Hong Kong Electric Company) and the Li Ka-Shing Foundation. The three initial shareholders in UKPNHL were Devin International Ltd ('Devin') which was owned by the Hong Kong Electric Company, Eagle Insight International Ltd ('Eagle') which was owned by the Li Ka-Shing Foundation and CKI Number 1 Limited ('CKI-1') which is a member of the Hutchison Whampoa group of companies.
voting
rights. Between 11 September 2010 and 30 December 2010 there were
various
amendments to the rights of the UKPNHL shareholders. On 11 September 2010, the three shareholders entered into an agreement to settle the contributions each would make to fund the £3 billion needed to buy the EDF business and to set out the respective rights they would acquire if their bid were successful. The agreement was that Devin and CKI-1 would both put in 40% of the funding and own 40% each of the company and Eagle would contribute 20% and own 20%. The agreement provided that the proportions of
votes
at Board level were to be 49.5% to CKI-1, 16.8% to Eagle and 33.7% to Devin. This reflected the commercial intention, Mr Peacock said, that none of the three would control UKPNHL, regardless of their respective levels of contribution to the financing.
via
UKPNHL had been completed, the parties entered into a new shareholders' agreement and a new set of articles of association was adopted. At this stage two new companies joined as shareholders, CKI Number 2 Limited ('CKI-2') and CKI Number 3 Limited ('CKI-3'). I refer to CKI-1, 2 and 3 as 'the CKI Companies"; they are all members of the same corporate group. The October shareholders agreement provided for a new share structure with A and B ordinary shares. The upshot of that agreement was that the ordinary share capital of UKPNHL was then owned as follows: 33.6% by CKI-1, 32% by CKI-2, 32% by CKI-3, 0.8% by Eagle and 1.6% by Devin. At that point Eagle and Devin dropped out of the consortium because they no longer owned at least 5% of the shares of UKPNH, so the members of the consortium were only the three CKI Companies. The percentage of
votes
held by the shareholders was
varied
by the new articles of association only slightly from previous position so that CKI-1 had 27.6% of the
votes,
CKI-2 and CKI-3 had 11% each, Eagle had 16.8% and Devin had 33.6%.
voting
threshold in article 7.5 required to pass shareholder resolutions was increased from a simple majority (which for convenience I will call 50%) which had applied in the absence of any express provision on the matter in the original articles to 75% ('the 75%
Voting
Threshold'). The new article read:
"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 bevalidly
passed."
various
changes to the
voting
rights, this caused the combined
voting
rights of the CKI Companies to increase from 49.6% to 74.6%, with CKI-1 holding 25.2% of the
votes,
CKI-2 24.7% and CKI-3 24.7%. Eagle had 8.6% of the
votes
and Devin 16.9%. The other potential ownership proportions did not change so that after 30 December 2010 and during all the relevant overlapping periods the CKI Companies were the three members of the consortium which together with Eagle and Devin owned UKPNHL. The CKI Companies together held 97.6% of the ordinary share capital of UKPNHL and 74.6% of the
votes.
Also on 30 December 2010, CHKI-3 and the owner of Devin entered into a
voting
agreement, referred to in the decisions as the December
Voting
Agreement or 'DVA', by which CKI-3 promised that it would not exercise its
votes
in UKPNHL without the prior written consent of the other party to the agreement.
voting
rights. The Appellants' claim for relief was therefore made adopting that proportion as the ownership proportion.
view
on the purpose.
The judgments below
Vodafone
2
v
HM
Revenue
and Customs [2006] EWCA Civ 1132, [2006] STC 1530. In that case
Vodafone
had applied for a closure notice in relation to an enquiry into whether certain profits should be apportioned to the taxpayer company pursuant to the tax provisions relating to controlled foreign companies. The issue in the enquiry was whether the taxpayer was right to contend that an exemption from those provisions applied. However,
Vodafone
raised a more fundamental point that the tax provisions themselves were contrary to EU law.
Vodafone
applied to the Special Commissioners for a closure notice direction on the ground that because the legislation to which the enquiry related was contrary to EU law, there was no basis for the enquiry to continue. There was no doubt that the issue of compatibility needed to be determined in order to decide whether they should direct HMRC to issue a closure notice. The Court of Appeal held that the Special Commissioners did have jurisdiction to decide an incidental question of law in the course of deciding whether to direct the issue of a closure notice.
"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 inVodafone
2. If the Tribunal decides the question of law, it will determine the application for the closure notice."
voting
threshold from the original 50% to 75% and the December
Voting
Agreement: [243]. She rejected the contention that the December
Voting
Agreement was part of the arrangements and there has been no appeal against that part of her decision. She held that the relevant arrangement was the increase in the
voting
threshold to 75%: [256].
"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."
votes
in UKPNHL, they would control it if the
voting
threshold had not been raised from 50% to 75% by the October articles of association. The test in section 146B(3)(a) was met. Judge McKeever then considered whether the arrangements also fell within section 146B(2)(b). She held that this condition was not satisfied because the arrangements did not enable Eagle and Devin to prevent the CKI Companies from controlling the Appellants. She said at [273]:
"If either Eagle or Devinvote
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."
voting
threshold to prevent the CKI Companies from exercising control of the claimants. The increase in
voting
threshold was not an arrangement to which section 146B applied because section 146B(2)(b) was not satisfied. That made it unnecessary for HMRC to enquire into the purposes of the scheme so she directed HMRC to issue a closure notice within 30 days of the release of the decision.
Voting
Threshold by itself; or (ii) the combined effect of the 75%
Voting
Threshold and the
votes
of Devin and Eagle which together amount to 25.4% of the
voting
rights at UKPNHL's general meetings: [46].
votes
attached to those shares if one of the existing members consents. In that case the "arrangement" would be the
voting
agreement which enabled the existing shareholders party to the agreement to stop the new member from exercising its majority of
votes.
Voting
Threshold that was part of the company's articles of association could not be an 'arrangement' within the meaning of the section. They concluded at [66] that the 75%
Voting
Threshold in article 7.5 was capable of falling within the meaning of the term 'arrangements' for the purposes of section 146B. They disagreed with the conclusion of Judge McKeever on section 146B(2)(b):
"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 sufficientvoting
![]()
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 thevoting
![]()
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."
votes
to 'prevent' the minority shareholder from controlling the claimant company. The potential width of the class of arrangements falling within section 146B(2)(b) was reduced by the two requirements in section 146B(3): "Approaching the structure of the section in that way means that there is no reason to construe s.146B(2)(b) restrictively, because potential anomalies which might arise if regard were only had to s.146B(2)(b), are in fact limited or removed by the operation of s.146B(3)": [78]. They therefore held that the FTT had erred in finding that the arrangements constituted by article 7.5 of the UKPNHL articles of association did not satisfy section 146B(2)(b).
Voting
Threshold satisfied the requirement in section 146B(3)(a) because, had that provision not been in the articles of UKPNHL, the CKI Companies would have controlled UKPNHL during the overlapping periods. They therefore allowed the appeal, dismissed the cross appeal and set aside the direction made by the FTT.
The appeal
Voting
Threshold by itself and at some points to the combined effect of the 75%
Voting
Threshold and the minority
votes
holdings of Devin and Eagle. Ground 2 contends that the Upper Tribunal was wrong to hold that section 146B(2)(b) should be given a broad interpretation to be cut down only by the effect of section 146B(3). Ground 3 argues that the Upper Tribunal's interpretation fails to give any meaning to the requirement in section 146B(2)(b) that the arrangements enable a person to prevent the link company from controlling the claimant company. In their respondent's notice, HMRC invite this court, in so far as it is necessary, to uphold the decision of the Upper Tribunal on the ground that the arrangements encompass the parties' share rights, by which I assume they mean their
voting
rights, as well as the 75%
Voting
Threshold itself.
Voting
Threshold by itself, without needing to rely on the combination of that and the
voting
rights of the minority shareholders.
The content of the 'arrangements' in this case
voting
threshold to 75%' whereas the case presented to the Upper Tribunal by HMRC and that the Upper Tribunal accepted was that the arrangement comprised the 75%
Voting
Threshold itself. This seems to me a distinction without a difference. The actual increase in the
voting
threshold which took place when the new articles of association were adopted occurred only on 29 October 2010 – that was not the arrangement but was the setting up of the arrangement, the arrangement being the ongoing 75%
Voting
Threshold.
Voting
Threshold and not a combination of that plus the minority shareholders'
votes.
They were right to do so. The relevant arrangement here, at least at this stage of HMRC's enquiry, is the fact that the
voting
threshold set by article 7.5 of UKPNHL's articles of association requires a majority of 75% of the
votes
before a resolution can be passed at general meeting.
Applying section 146B(3)(a)
Voting
Threshold. That test requires the comparison of the situation with the arrangement in place with the situation where the arrangement does not exist. What would be the situation here but for the 75%
Voting
Threshold? It would be that the CKI Companies would have 74.6% of the
votes,
in accordance with the articles of association adopted on 30 December 2010, but that the
voting
threshold would still remain at 50% because the article 7.5 adopted in October 2010 would not exist. In that counterfactual world, there seems to me no doubt that the CKI Companies would control UKPNHL and hence the Appellants.
Voting
Threshold did not cause control of UKPNHL to change. At no time had the CKI Companies had control, whether one regarded the
voting
threshold applicable in the counterfactual as being the pre-October 2010
voting
threshold or the 50% threshold that applies by default in the absence of any contrary provision in a company's articles. One cannot say, in the present case, that the 75%
Voting
Threshold caused the link companies' lack of control and that causative requirement is what section 146B(3)(a) is designed to impose.
Voting
Threshold, the CKI Companies hold enough
votes
(i.e. over 50%) to control UKPNHL. I therefore reject the submission that the Upper Tribunal erred in failing to apply a causative test in section 146B(3)(a). They applied the test that is required by the provision by comparing the position with and without the 75%
Voting
Threshold and determining that since the CKI Companies had no control with the arrangement in place but would have control in the absence of the 75%
Voting
Threshold, the test was satisfied.
voting
threshold was not increased in October 2010, the consortium members would still have increased the CKI Companies'
votes
to 74.6% in the December revisions. If one disregards the increase in the
voting
threshold, one must also disregard the increase in
votes
because this accords with the commercial understanding between the respective parties that none of the CKI Companies, Devin or Eagle was intended to have sufficient
votes
to pass resolutions unilaterally. That is not, in my
view,
what the section requires. The increase in the CKI Companies'
voting
power
from 49.5% to 74.6% is not part of the arrangement being tested and so does not fall to be disregarded when constructing the counterfactual in section 146B(3)(a). I cannot improve on the reasons given by the Upper Tribunal when rejecting the same argument put to them:
"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."
voting
share of the CKI Companies raised by the December changes to the articles of association, given that the increase had no effect on the control of UKPNHL? That is precisely the question that HMRC wish to investigate further under section 146B(3)(b). One cannot ignore the increase of
voting
rights from 49.5% to 74.6%, since that is the basis on which the Appellants assert that the lowest ownership proportion for the purposes of section 144(3) is 74.6% rather than 49.5% and hence that their entitlement to consortium relief is higher than it would have been if the
voting
threshold had not been changed.
Applying section 146B(2)(b)
Voting
Threshold enabled a person to prevent the CKI Companies from controlling UKPNHL. Again, I do not see any difficulty in saying that with the 75%
Voting
Threshold in place, Eagle and Devin are enabled to use their 25.4% of the
voting
rights to prevent the CKI Companies from controlling UKPNHL. If the
voting
threshold had stayed at 50% and the CKI Companies had 74.6% of the
votes,
Eagle and Devin would not be able to prevent that.
venture.
votes
in the claimant company to pass a resolution itself but enters into a
voting
agreement with another shareholder not to exercise those
votes
otherwise than in accordance with the other shareholder's wishes. However, shareholders have a
variety
of mechanisms by which they can allocate whatever financial and controlling interests amongst themselves that they want; by issuing different classes of shares with different rights attached, by providing in the articles of association that resolutions concerning specified matters require a larger majority of
votes
to be adopted than others, or by entering into side agreements as to how they will exercise such rights as they have. Mr Peacock fairly accepted that anti-avoidance provisions such as section 146B must be drafted so that they apply not only to the paradigm case but to the other ways in which the same effect can be achieved. That is what the drafter has attempted here and it would be a poor attempt if it could be side-stepped as easily as the Appellants contend.
voting
rights against the CKI Companies in order for them to prevent the CKI Companies from controlling UKPNHL. Mr Peacock argued in reply that because the blocking 25.4% of the
votes
was split between Devin and Eagle, there was no person or persons able to prevent the CKI Companies from controlling UKPNHL. They could each only do so with the cooperation of the other. If there was an agreement between them to
vote
their shares together then that would be a separate element in the arrangement. In the absence of any such agreement between them, neither of them alone is enabled by the 75%
Voting
Threshold to prevent the CKI Companies from controlling UKPNHL.
votes
and there is an arrangement in place which sets the
voting
threshold at 75%. That means that there must be other holders of
voting
rights who have the ability to stop them. He argues therefore that it does not matter that there is no single person who acting alone could block the CKI Companies from controlling UKPNHL. The fact that there are other
vote
holders who could, if they
voted
together, defeat the link company is enough to satisfy the test – they are each enabled to prevent control.
votes
just short of the
voting
threshold and the blocking share of the
vote
was held by one single, other person. Again, that would make it
very
simple for consortium members to avoid the application of the provision and require, in each case where the blocking tranche of
votes
was split between more than one non-consortium member, the existence of some agreement between them as to how they would cast their
votes
before the provision could come into play. The wording of the provision does not suggest that Parliament envisaged that one would need to investigate the question as to how likely or unlikely it is that those other
vote
holders will
vote
in the same way on any particular issue so as to defeat the link companies. The provision works as it must have been intended to do where there is one or more link companies whose
votes
are aggregated when arriving at the lowest ownership proportion. On the other side of the equation there may be one or more "enabled persons" and one must aggregate their
votes
to determine whether there is a person or whether there are persons who are enabled by the arrangement to prevent control.
votes
to control UKPNHL, the answer is that two elements are necessary. The first element is the fact that the
voting
threshold is set at 75% and the second element is that Eagle and Devin together have 25.4% of the
votes.
For the arrangements to pass through the gateway of section 146B(2)(b), therefore, the 'arrangements' being tested must contain those two components and section 146B(2)(b) would not be met if the arrangement comprised the
voting
threshold alone. But if that is right, Mr Peacock said, when one comes to apply the gateway in section 146B(3)(a), one has to consider the position in the absence of the whole arrangement, including both the absence of the 75%
Voting
Threshold and also the absence of Eagle and Devin's 25.4% shareholding as well. This leads to a nonsensical 'but for' counterfactual where the
voting
threshold remained at 50% but the only
votes
are the 74.6% of the
votes
held by the CKI Companies. Section 146B(3)(a) therefore only works if one treats the arrangement as limited to the single element of the 75%
Voting
Threshold by itself. Then one can say that if the
voting
threshold had not been increased to 75% the position would now be that the
voting
threshold would be 50% and the CKI Companies with their 74.6% of the
votes
would be able to control UKPNHL. But conversely, that single element 'arrangement' which works for section 146B(3)(a), does not get through the gateway of section 146B(2)(b) because the reason why Eagle and Devin are enabled to prevent CKI Companies from controlling UKPNHL is not only because of the
voting
threshold, but also because they hold 25.4% of the
votes.
Voting
Threshold without needing to add in the
votes
of Eagle and Devin as part of the arrangement. It is the
voting
threshold together with the fact that the CKI Companies hold only 74.6% of the
votes
that enables other persons, in this case Eagle and Devin combined, to prevent them from controlling UKPNHL.
Voting
Threshold, that satisfies both section 146B(2)(b) and section 146B(3)(a). HMRC must therefore continue their enquiries to determine whether that arrangement forms part of a scheme which has the purpose specified in section 146B(3)(b). I would therefore uphold the decision of the Upper Tribunal and dismiss the appeal.
The procedure followed in this application
Vodafone
case was a
very
particular instance where the legal issue was not simply one among many issues that was raised by the construction of anti-avoidance legislation. It was, as Arden LJ said, a point that was so fundamental as to be capable of bringing the enquiry to a halt if decided in a particular way: [26]. In my judgment, the jurisdiction to decide an incidental point of law in an application for a closure notice direction is useful, as the
Vodafone
case shows, but only if the discretion to exercise it is used sparingly. The position that we have found ourselves in this appeal demonstrates why. It will
very
often be the case that a statutory provision sets a number of cumulative conditions to be satisfied before it applies. Some of those conditions may be relatively straightforward and require little information from the taxpayer and some may require more extensive information. Taxpayers should not be encouraged to pick and choose which information they provide and then ask the tribunal to decide the applicability of one element in the hope that a "quick win" will bring the rest of the enquiry to a halt. That is a recipe for inefficient, stop/start enquiries and risks wasting a great deal of judicial time. Judge McKeever undertook a detailed analysis of the information requests and received written and oral evidence from the HMRC officer as to the relevance of the information requested and the history of the enquiry. Although Judge McKeever said that it was not necessary to set out the history in detail, her summary exposition nevertheless took up several pages of her decision.
various
scenarios possible at the end of the enquiries that will mean that this whole exercise has been pointless.
vehicle for deciding points of law in the course of an enquiry such as the present.
Lord Justice Dingemans:
Lord Justice David Richards: