DECISION
1.
These appeals arise out of amendments made to the Appellants’ self assessment
Tax Return for 2005/2006 following the closure of enquiries on 9 February
2011. They concern the question of whether profits made by the Appellants on
investments in “STICS” (described in more detail below) should be chargeable to
income tax (as is contended by HMRC) or not, (as is contended for the
Appellants).
2.
There are two questions in these Appeals. First: were the profits made
by the Appellants discounts of an income nature being discounts within the
meaning of the expression “all discounts” as found in Section 381 of Income Tax
(Trading and Other Income) Act 2005 (“ITTOIA”) (replacing Section 18 of ICTA
1988)? Second: was the profit of each Appellant a profit “on the disposal of
deeply discounted securities” within the meaning of Section 427(1) of ITTOIA?
3.
The legal issues as regards all the appeals are the same and there are no
relevant differences of fact. We will refer, for simplicity, to the
circumstances of the Appeal of Mr Andrew Savva. The answers to both the
questions referred to above will in turn depend on an inquiry into what Mr
Savva actually acquired when he embarked on the transactions that produced the
profit with which this Appeal is concerned. For this purpose we will start by
setting out the agreed facts, and, where necessary, our findings of facts. From
those we will draw our conclusions as to what Mr Savva acquired and disposed of
the course of the relevant transactions; and with that question in mind we will
turn to the second question.
“STICS”
4.
Sometime in 2004, Mr Savva was made aware of the existence of a
“product” being marketed by UBS Wealth Management. The product is known as
STICS which stands for “Sterling Investment in Capital Security”. On or around
20 September 2004, Mr Savva signed a pre-printed “Key Features Document” in
relation to STICS. This recorded the “Objective” of STICS as:
“To improve after tax returns compared with holding
cash or short to medium term deposits. After tax returns are expected to be
30% and 60% in STICS compared with a normal deposit.”
The
product was described as follows:
“The client purchases a corporate bond from UBS. The
bonds will be issued by financial institutions with credit ratings of A plus or
above. The bond purchased will have had its coupons removed (“stripped”) and
will be sold at a present value reflecting interest rates to redemption. The
value of the bond should appreciate during the term and reach par at maturity”
Under
“taxation” it was stated:
“We have been advised that the profit on sale or
maturity of the bond should be a capital item for tax purposes, not income. The
bonds selected are intended to be Qualifying Corporate Bonds. We have also
been advised that capital gains on sale of Qualifying Corporate Bonds are
exempt from capital gains tax. We recommend that you take your own independent advice on the tax treatment of the
investment.”
5.
The Key Features Document had been prepared in advance and supplied to
UBS Wealth Management’s representatives as part of the marketing materials. An
account of the STICS arrangements which UBS Wealth Management disclosed under
the Disclosure of Tax Avoidance Schemes (“DOTAS”) rules had been given at a
meeting between HMRC and UBS Wealth Management in February 2007. We were
provided with a note of that meeting (“the Meeting Note”); the note has been
approved by UBS and its contents were not challenged by Mr Savva. The account
given by UBS AG in its DOTAS Notification of 29 September 2004 is as follows:
“The client
purchases a corporate bond from UBS. The bond is issued by a financial
institution with a credit rating of A plus or above; the bond purchased has had
its coupons removed (“stripped”) and is sold to the Client at price reflecting
the present value (based on current interest rates) of the future redemption
value; the value of the bond appreciates during the term and reaches par at
maturity.”
Mr Savva obtains a
STICS
6.
In preparation for the marketing of the product, UBS had obtained advice
as to the tax consequences of the STICS arrangements from a City law firm. The
STICS arrangements had been “signed off” by UBS’s risk committee.
7.
Armed with the Key Features Document, a PowerPoint presentation and the City
law firm’s advice, UBS’s representative had a meeting with Mr Savva in the
course of which Mr Savva signed the Key Features Document; this is dated 20
September 2004. The Meeting Note states that “instructions would normally
be given either by phone or by email….. They would not usually be in
writing”. The consequence is a shortage of written evidence of the strip
in the STICS arrangements. Signed Key Features Documents were, according to
the Meeting Note, “grouped with those of other clients and passed to
the MT Loan Desk for the transaction to proceed”.
8.
A written record (the “Consolidated Advice Report”) produced by UBS
Wealth Management on 28 September 2004 records Mr Savva as having made a “purchase”
of £2,029,000 of “Abbey National Treasury Services 0% 2004 – 29.01.2006 STICS
48” for a gross amount of £1,923,068.20 (representing 94.78% of the nominal
value). We refer to the subject-matter of that purchase as “Mr Savva’s STICS”. The
facts relating to Mr Savva’s STICS are now summarised.
9.
In or around 29 March 2004, an Information Memorandum (“the Information
Memorandum”) had been issued in respect of a USD 15,000,000,000 Euro Medium
Term Note Programme (“the Programme”) on behalf of various companies within the
Abbey National Group of companies. “UBS Investment Bank” was named as one of
the Programme Dealers.
10.
By a “final” Pricing Supplement issued by “Abbey” (supplemental to and
to be read in conjunction with the Information Memorandum) dated 4 October
2004, various terms of an issue under the Programme of £14,000,200 Fixed Rate
Notes due 2006 (“the FRNs”) were set out. (We refer to that as “the Pricing
Supplement”). UBS Ltd was named as the “relevant Dealer”.
11.
The terms of the Pricing Supplement showed the issuer as Abbey National Treasury
Services plc (“ANTS”). The “issue price” was “100% of the nominal value”. The
“issue date” was 5 October 2004 and the “maturity date” was 27 January 2006.
The “rate of interest” on the FRNs was “4.98% fixed, payable annually in
arrears”. “Interest payment dates” were 19 October 2004, 19 April 2005, 19
October 2005 and 27 January 2006. The FRNs were to take the form of a
registered “Regulation S Global Note”. By provisions found on page 16 of the
Information Memorandum, Regulation S Global Notes were to be deposited with a
common depositary for, and registered in the name of a common nominee of,
Euroclear and Clearstream.
12.
The FRNs were held in Euroclear. Euroclear is a clearing system that
maintains records of the owners of bonds on a computer-based system. Typically
there is one physical certificate (known as a global note or bond) representing
the entire issue by the borrowing company. This is held by a common depositary
on behalf of the clearing system, e.g. Euroclear. Ownership interests in bonds,
such as these FRNs, are represented by entries in the accounts of participants
or clients of Euroclear. The title to the notes can only be exchanged via
Euroclear. The practical effect of the above is that on the issue of each tranche
of FRNs to UBS, UBS would be the custodian and all the FRNs would be held to
their account in Euroclear. A record of which UBS client held the particular
note would be maintained by UBS. UBS’s customers, such as Mr Savva, did not
receive certificates denoting their interests in the FRNs.
13.
It was not in dispute and we accept that, by 28 September 2004 when the
Consolidated Advice Report was released by UBS Wealth Management (stating that
Mr Savva had purchased £2,029,000 nominal of “ANTS 0% 2004 – 27.01.2006 STICS 48(GBP)”),
Mr Savva had acquired rights against UBS; the most significant of those was the
right to redemption at face value on the due date.
14.
According to the Pricing Supplement, UBS duly obtained the FRNs, the
issue date being 5 October 2004. We infer that the £14,200,000 of FRNs covered
the requirements contained in the STICS that had been ordered by the then
current batch of UBS’s customers for the product: the batch included Mr Savva’s
order placed when he signed the Key Features Document on 20 September 2004 as
well as the orders of the other Appellants in this appeal.
Stripping the FRNs
15.
When the FRNs were actually stripped is not disclosed by any evidence.
There is no dispute that the FRNs were stripped of their coupons. The machinery
for stripping is set out in an Operations Information publication issued by
Euroclear. This says of “stripping” that it is:
“…the process whereby interest coupons for future
payment dates are separated from the security corpus that entitles the holder
to the principal repayment. Each stripped coupon (Coupon Only or CO) or
stripped corpus (Principal Only or PO) becomes, in effect, a zero coupon
security and is assigned a separate security code, different from the security
code of the original security.”
16.
Stripping required the “participant” to fill in and lodge a
form instructing the “detachment” (or stripping) of the coupons. We proceed on
the basis that UBS in its capacity as a participant, on some date following the
issue to it of the FRNS, instructed Euroclear to detach the coupons from those
FRNs. The stripped (Principal only) “corpus” of the FRNs was recorded in
Euroclear’s records under the name UBS. In UBS’s records, the stripped FRNs
were, at all material times, allocated to its customers (including Mr Savva and
each other Appellant) according to their holdings of STICS product.
Redemption of Mr Savva’s STICS
17.
The Consolidated Advice Report, produced by UBS Wealth Management on 28 January
2006, records the “settlement” of Mr Savva’s STICS for £2,029,000 on 27 January
2006.
The Issues
18.
We now turn to the two relevant issues of law. We will address first
the question whether the profit determined by reference to the return obtained
by Mr Savva on redemption of his STICS is taxable as a discount (under Section
381 of ITTOIA). Section 381(1), we mention, directs that the return cannot be
charged to tax both as a discount and as a deeply discounted security.
Nonetheless, and with that in mind, it remains relevant to address the second
issue, namely whether Mr Savva’s profit was a profit “on the disposal of a
deeply discounted security” within the meaning of Section 427 (1) of ITTOIA.
Discounts
19.
Mr Hennessy Thompson for Mr Savva contended (to use the words in his
Skeleton Argument) that “the profit realised on the redemption of the
Eurobond (STICS) should not fall to be taxed for the following reasons: (a) the
Eurobond was issued at par and redeemed at par, (b) it is an income bearing
instrument, (c) it is not a promissory note, bill of exchange or other
instrument which in the ordinary commercial usage is issued at a discount and
does not carry a right to interest”. He submitted that “Mr Savva’s
initial investment in the form of a loan to Abbey National to acquire the Bond
in exchange for that Loan was a Capital Investment”. Pointing out that the
corpus of the FRN was a Qualifying Corporate Bond, as defined in section
132(3)(b) of TCGA, Mr Hennessy Thompson contended that “the capital
appreciation of the corpus of the Qualifying Corporate Bond is capital
appreciation and not interest”. FRNs were not, he contended, deeply
discounted securities; nor was any discount contained in any of the relevant
transactions.
20.
HMRC contend that Mr Savva actually bought a bundle of rights and it
was not relevant to the question of whether he obtained a discount to determine
whether those rights consisted of either the original FRNs (stripped of their
coupons) or the STICS. If the “securities” in question were the STICS, then
they were bought by Mr Savva at a discount; and if they were FRNs (stripped of
their coupons), then he was an intermediate purchaser who bought the modified
package rights at a discount.
Discounts: the Charging Provision
21.
Section 369 of ITTOIA provides that:-
“(1) Income tax is charged
on interest.
(2) The following sections
extend what is treated as interest for certain purposes –
…
Section 381 (discounts)”
Section 381 provides that:-
“(1) All discounts, other
than discounts in deeply discounted securities, are treated as interest for the
purposes of this Act.
(2) In this section
“deeply discounted securities” means securities to which Chapter 8 of this Part
applies (profits from deeply discounted securities)”
The wording of section 381 reflects the wording of
Schedule D Case III (b) (see section 18 of ICTA 1988 and its predecessors).
Section 18, which applied in September 2004 when the Appellants made their
investments provides:-
“(1) … Tax under this Schedule
shall be charged in respect of…the annual profits or gains arising or accruing
… to any person residing in the United Kingdom from any kind of property
whatever …
(2) Tax under Schedule D
shall be charged under the Cases set out in subsection (3) below …
(3) The Cases are …Case
III: tax in respect of …all discounts …”
Conclusions on the Discounts Issue
22.
The critical question, in determining whether Mr Savva’s “profit” was a
discount, is whether the wording of the charging provisions, i.e. “all discounts”
(in Section 381 of ITTOIA) covers the circumstances in which Mr Savva derived
the profit. The enquiry starts with the point at which UBS committed itself to
supply Mr Savva with the product. This happened on 20 September 2004 when Mr
Savva signed the Key Features Document.
23.
At that point UBS committed itself to acquire the FRNs to cover the
STICS to be supplied to Mr Savva. It committed itself to strip the FRNs and to
hold the stripped “Principal Only” FRNs for the benefit of Mr Savva, the
Appellants and any other members of the batch of applicants involved in that
STICS issue. For his part, Mr Savva agreed to pay to UBS the sum of
£1,923,086.20 being (according to the Key Features Document) the net present
value of the FRNs reflecting interest rates to redemption.
24.
UBS duly acquired the requisite amount of FRNs (to be issued on 5
October 2004 according to the Pricing Supplement).Whatever the actual date of
the stripping, Mr Savva and the other members of the batch interested in the
STICS issue had, by reason of their agreements with UBS, no rights to the
interest payable by ANTS on the FRNs.
25.
The effect of the stripping of the FRNs was that both Mr Savva (as well
as the other members) and UBS had interests in the obligations undertaken by
ANTS when it issued the FRNs on 5 October 2004. The stripped FRNs remained in
Euroclear’s books in the name of UBS as the participator. Mr Savva, in common
with the other members, was, in right of his STICS, “beneficially entitled” as
against UBS to the appropriate portion of the FRNs (i.e. such part as on
redemption at maturity would produce the agreed sum of £2,029.000).
26.
The difference between what UBS paid to ANTS in return for the issue of
the FRNs required to cover the STICS supplied to Mr Savva and the lesser amount
of £1,923,086.20 paid to it by Mr Savva was matched by the net present value of
the interest payable until maturity on the stripped coupons. The intended (and
the actual) result was to put Mr Savva in the same position as he would have
been in had he subscribed directly for the FRNS but with no rights to any
interest on them. Had he so subscribed, he would then have been involved in a
discounting transaction. The transaction did not, of course, take that form.
Nonetheless, it seems to us that the purpose and effect of the proposals, in
the Key Features Document and as explained in the rest of the documentation,
was for the customer (such as Mr Savva) and UBS to agree to create a separate
“Principal Only” right in the FRNs, the value of which was to be equal to the
amount to be paid by the customer to UBS.
27.
In the circumstances, the FRNs were stripped to order to fulfil the
common purpose of UBS and Mr Savva (and the other members of the batch
interested in the STICS issue). The price paid to UBS by Mr Savva and the
others reflected the net present value of the stripped FRNs and stood at a
discount to maturity. The increased amount payable to Mr Savva was, on that
basis (and without the need to rely on any authority), a profit on a discount
taxable as income under Case III of Schedule D or section 381(1) ITTOIA..
Further, to address Mr Hennessey Thompson’s argument, while we agree that the
FRNs were issued at par and redeemed at par, Mr Savva never paid more than
their net present value, i.e. the discounted amount, following the stripping
of the interest coupons.
28.
Principles relating to the taxation of discounts were established by the
House of Lords in Brown v National Provident Institution [1921] 2 AC 222
(“NPI”). The case was concerned with, among other things, the
application of the second rule of the Third Case of Schedule D of Section 100
of the Income Tax 1842 to certain transactions in Treasury Bills. The Treasury
Bills were variously of 3, 6 and 9 month’s maturity. Some had been sold during
their currency; others had been held until maturity.
29.
At page 254 of the NPI decision, Lord Sumner emphasised the width
of the statutory language:
“The rule…relates to ‘profits’
on all discounts from whomsoever made. There is no definition of discount in
the statutes; no restriction of it to transactions in use in the year 1842; no
evidence of its meaning as a term of art at any time”
30.
The abbreviated nature of the statutory language was noted. This resulted
in judicial interpretations. Lord Atkinson, on page 250 of NPI,
considered – “The words are not happily chosen, but must, I think, be taken to
mean ‘all profits arising from discount’”. Viscount Cave adopted the approach
of Scrutton LJ in the Court of Appeal and, on page 238, considered that “The
expression ‘profit on a discount’… is probably elliptical for ‘profit on a
security bought at (or a transaction involving) a discount’”.
31.
Viscount Cave, at page 238 of NPI, emphasised that a purchase, in
that case of a Treasury bill from the Treasury, was a transaction by way of
discount. He went on to say – “if it were decided otherwise, an easy way
would be opened to money lenders of evading the payment of tax on their
interest on short loans”. He then observed that the legislation invited no
investigation on what accretion was capital and what was income; the whole
profit was to be treated as an income profit. He observed at pages 238-9 that
a relevant factor of importance was that the amount secured by the bill
remained unaltered.
32.
In the circumstances of that case, the House of Lords concluded that
profits had been made on discounts within the meaning of Third Case of Schedule
D. Here, the rights attaching to the STICS are and remain embedded in the
underlying security, i.e. in the FRNs that were obtained as part of the scheme.
Moreover, the amounts secured by the FRNs remained the same. By purchasing, at
a discounted price, the benefit of repayment at par on maturity of the FRN, Mr
Savva came to make a profit on a discount in the sense of a “profit on a
security bought at (or a transaction involving) a discount” (see the words of
Viscount Cave at 238, cited above).
33.
Ditchfield v Sharp [1983] 3 All ER 681 was concerned with a promissory
note purchased on 26 February 1970 (which had originally been issued on 23 May
1969). This had been redeemed on maturity on 1 February 1973, and the
purchasers received £460,065 more than they had paid. The Court of Appeal held
that this profit was a discount within the meaning of paragraph (b) Case III of
Schedule D.
34.
The Court of Appeal (see Fox LJ at 684 c-d) noted that the promissory
note had fallen within the OED definition of discount. This had been cited by
Lord Atkinson in NPI. The definition of “Discount” includes the
following:
“… as used in commerce
(1) is defined to mean a deduction (usually at a certain rate per cent) made
for payment before it is due of a bill or account….(2) the deduction made from
the amount of a bill of exchange or promissory note by one who gives
value for it before it is due”.
At no point in Ditchfield v Sharp had it been
suggested that discounts were, as has been contended here by Mr Hennessey
Thompson, limited to discounts on bills, accounts, bills of exchange or
promissory notes (all mentioned in the OED quotation). That would have been inconsistent
with the expression “all discounts”, and with, for instance, the views of Viscount Cave in NPI cited above.
35.
The Court of Appeal in Ditchfield v Sharp rejected an argument
that the profit was of a capital nature. In doing so (at page 685), they
pointed out that it was for the Appellant to displace the assessment and the
question for the Court was what was the proper conclusion on the facts. Fox LJ
referred to and applied Lomax v Peter Dixon [1945] KB 691: in
circumstances where there was no interest payable as such, a discount “will
normally, if not always, be discount chargeable under Case III, r.1(b)” (as
the legislation then was). Fox LJ went on to say: “I see no reason to doubt
that approach. The holder of the discount, must, one assumes, be
getting a return for his money. It is up to him to demonstrate the capital
quality of the discount if he asserts its existence.”
36.
A further point made in the decision of the Court of Appeal in Ditchfield
v Sharp is that the purchase of a promissory note by an interim holder was
a discount (see Fox LJ 684 e-f, referring to Lord Sumner in NPI);
therefore, whether or not there was a discount on original issue was not
relevant if a discount was found on the intermediate transaction. If authority
were needed, that displaces an argument, based on Mr Savva’s position as an
intermediate purchaser presented in reply by Mr Hennessey Thompson.
37.
We revert to the facts of the present case. Mr Savva obtained a bundle
of rights from UBS. It is not material how those rights are characterised.
Whether they amount to a security is not a requirement of the charging
provision in Section 381 (1) (and the words of its predecessors). The duration
of the STICS tends to confirm that, viewed from the perspective of period to
maturity, they fall within the type of transaction that can amount to a
discount; they lasted for some 15 months from purchase to maturity. Significant
also is the lack of payment of interest on the STICS; it points in the
direction of Mr Savva’s profit having been an income return. It is also clear,
from Mr Savva’s evidence (provided in a Witness Statement) and from the Key
Features Document, that the investment was made so that Mr Savva could get a
better return than on a bank deposit.
38.
Our conclusion is that the “profit” obtained by Mr Savva was within the
scope of section 381 of ITTOIA, the charging provision. His purchase was for
an amount discounted to maturity. There was no economic return to him other
than the discount and the investment was evidently chosen because it provided a
better return than the bank deposits. In our view, the transaction falls
within the words “all discounts” used in the charging provision.
Deeply Discounted Securities
39.
HMRC submit that Mr Savva’s profit falls within the alternative head of
charge as being a profit “on the disposal of deeply discounted securities” within
the meaning of Section 427(1) of ITTOIA. The success of the UBS scheme, and of
Mr Hennessey Thompson’s argument, both rely for their success on the correct
analysis being that Mr Savva purchased the underlying FRNs (albeit stripped of
all their coupons). On that basis it was argued that as these securities were
issued and redeemed at par, they could not be deeply discounted securities.
(See Section 430 of ITTOIA). If however the correct view is, as HMRC contend,
that the STICS purchased by Mr Savva were securities separate and distinct from
the FRNs, then the deeply discounted security requirements will have been met.
40.
A “security”, it will be recalled, is deeply discounted security within
the definition in Section 430(1) of ITTOIA if, “as at the time it is issued”
the amount payable on maturity exceeds “the issue price” by more than
the amount calculated using the formula in Section 430.
41.
It is not in dispute, as regards the bundle of STICS rights, that the
redemption amount exceeds the price paid for it by the relevant amount. The
questions that arise, in deciding whether the profit falls within Section
427(1), are whether the bundle of STICS rights can promptly be described as
“securities” and whether the STICS were “issued”. We start with the
“securities” question.
42.
Although the available authorities referred to below derive from the
capital gains tax context, that case law throws a light on the meaning of
“security” for present purposes.
43.
In Ramsay v IRC [1982] AC 300, Lord Wilberforce discussed (at
329) the concept of “security” which was clearly a flexible one. He referred
back to earlier cases, including Aberdeen Construction v IRC
[1978] AC 885. He took the view that one of the characteristics which
distinguished “a debt on a security” from a security was that the latter might
increase in value or be dealt with at a profit (see 329 b-c) (i.e. by virtue of
“tradability”). In Taylor Clark International v Lewis (1998) 71 TC 226,
at 256-267, the Court of Appeal reviewed the authorities. One issue in that
case arose from the contention that a debt on a security needed to be a secured
debt. That contention was rejected by the Court of Appeal which concluded from
the authorities that, in the context of the “debt on a security” provisions
under consideration, there were three principal characteristics to be considered.
The first of those indicia was that, to be a security, the debt should be
capable of being assigned so as to realise a gain. Second, the debt should
bear interest. Third, there should be a structure of permanence.
44.
Looked at in the context of the circumstances of the present appeals,
the second of these requirements cannot be relevant; that is because many
deeply discounted securities are issued as such because they are designed to
give a return which is the economic equivalent of interest, which is done
through the discount.
45.
The STICS have, in our view, a sufficient “structure of permanence” to
satisfy the Taylor Clark International criteria. Most securities have a
term and here the fifteen month period to maturity is sufficient to satisfy
that test. The rights comprised in the STICS were, albeit that they were not
in fact traded, designed to be “capable of being assigned”. We refer to the
provision dealing with “sale before redemption” in the Key Features Document.
This reads:
“Should
you wish to dispose of all or part of your bond holding before redemption, you
may do so in the normal manner of the transferable security. However it should
be remembered that the market for Sterling Corporate Bonds might be volatile
and illiquid, therefore it could be difficult to find a buyer of those
securities”.
46.
Turning now to address the underlying basis of Mr Hennessey Thompson’s argument,
we need to determine whether the rights which together make up the STICS are
capable in law of amounting to securities. In this connection two further
matters arise. The first of these is whether there is anything about their
origin in the Fixed Rate Notes that prevents the STICS from being securities.
In our view, the fact of the continuance of the underlying FRNs is not
material. (We acknowledge that the original FRNs were not issued at a
discount.) The focus should, however, be on the STICS and their
characteristics. The second question is whether the STICS became sufficiently
differentiated from the Fixed Rate Notes to constitute separate securities. We
are satisfied that there was sufficient differential, not least because Mr
Savva’s STICS should (for the reasons explained above) have been represented by
a distinct PO (Principal Only) entry within the Euroclear system.
47.
For those reasons we are satisfied the STICS fell within the expression
“deeply discounted securities” in Section 427 (1) of ITTOIA.
48.
Were the STICS “issued” within the meaning of Section 430? The word
“issued” is not defined for the purposes of the deeply discounted securities
provision. Its meaning must be obtained from the context. HMRC submitted that
the STICS were marketed and purchased as securities in themselves.
49.
We refer Agricultural Mortgage Corporation v IRC [1978] 1 CH 72.
That case was concerned with the term “issue” in the context of stamp duty provisions
charging duty on issues of loan capital. We nonetheless consider it to have
relevance to the present circumstances. The Court of Appeal observed that the
ratio decidendi of in Heaton’s Steel & Iron Co (1876) 4 Ch.D 140 and
of in Ambrose Lake Tin and Copper Co. (1878) 8 ChD 635 was that “to constitute
an issue of shares there must be something more than a lodgement, and that
something may be either registration or the issue of a Certificate”.
Adapting those words to the loan capital with which the Agricultural
Mortgage Corporation case had been concerned, Goff LJ observed, at 101 D, that:
“there must be something which is recognisable as a thing
which is or can be issued and that there must be something emanating from the
company, being either (i) a document which in itself constitutes a security for
loan capital or (ii) some act on the part of the company, such as registration
or a letter of acceptance or possibly both or the issue of the certificate
whereby the company recognises the rights of and perfects the title of
surrender”.
50.
We accept from the Meeting Note of 27 February 2007 that UBS appears to
have aimed to keep to a minimum any written records of its relationship with
its STICS clients. Nonetheless, the Key Features Document (a UBS document)
offers a description of the STICS and its attributes. The Consolidated Advice
Report (also a UBS document) evidences the client’s purchase.
51.
The description given by UBS to HMRC and recorded in the Meeting Note indicates
(as one would expect) an internal record “of the trade being booked within
UBS Investment Bank’s own settlement systems with UBS holding the coupons as
principal and UBS Wealth Management holding the residual amount for the
benefit of its clients”. Something evidently falls to be done on the UBS
side both to declare the beneficial interests of the clients in their STICS and
to evidence the nature and extent of their interests. What was done amounted,
we think, to the “issue” to Mr Savva of his rights under the STICS. The STICS
were, in our view, issued by UBS within the meaning of the deeply discounted
securities legislation.
Sections 452A to 452G of ITTOIA
48. Finally, it was agreed by the parties that the
scheme under consideration in this appeal would, if implemented on or after 2
December 2004, have been caught by ITTOIA sections 452A to 452G. Mr Hennessey
Thompson argued that we should give weight to the fact that the law had been
changed in this manner when considering the tax effects of transactions that had
been implemented before the change took effect. Against that argument, HMRC
relied on the words of section 452A(1). This provides:
“All corporate strips are
treated as deeply discounted securities for the purposes of this Chapter, whether
or not they would otherwise be so”. [Emphasis added.]
We agree with HMRC. The emphasised words indicate that
this legislation cannot cast any light on the position before the date on which
it took effect. We note that HMRC’s Press Release, issued when these provisions
were announced, said (in paragraph 20) that they were intended to “put it
beyond doubt” that rights derived from a corporate bond are to be treated as
relevant discounted securities. While such a statement cannot, we accept, be
determinative of the issue, we consider that nothing in sections 452A to 452G
prevents us from reaching the conclusions set out above on the basis of the
statute and case law before those sections took effect.
49. For the reasons given
above the Appeals are dismissed.
50. This document contains
full findings of fact and reasons for the decision. Any party dissatisfied with
this decision has a right to apply for permission to appeal against it pursuant
to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules
2009. The application must be received by this Tribunal not later than 56
days after this decision is sent to that party. The parties are referred to
“Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)”
which accompanies and forms part of this decision notice.
SIR STEPHEN OLIVER QC
TRIBUNAL JUDGE
RELEASE DATE: 28 March 2013
