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ii) The actual consideration Ratio |
Subsection (5) provides, so far as relevant, that the chargeable consideration on the notional transaction is the largest amount (or aggregate amount) given by any one person for the scheme transactions. Ratio |
HMRC assert that that sum is the 1.25 billion which was the purchase price which MAR contracted to pay to PBL for the purchase of the freehold in the barracks. Ratio |
SDLT, which is chargeable at 4% on that figure, results in a liability of 50m. Ratio |
PBL contests this. ARG |
It points out that the Ijara arrangement was brought to an end on 1 March 2010, at a time when the fourth tranche of the consideration under the PBL-MAR sale agreement (US$378,670,740) had not been paid. ARG |
Before the FTT, PBL argued that MAR had therefore given consideration of only 970m and not the higher figure of 1.25 billion. ARG |
PBL now asserts that the sterling equivalent of the amount which it had drawn down was approximately 847m, because paragraph 9 of Schedule 4 to the FA 2003 requires the sterling equivalent to be calculated at the effective date of the transaction (ie 31 January 2008). ARG |
The higher figure of 970m was, PBL asserts, based on an erroneous calculation of the sterling equivalent of each of the US$ draw downs on its own draw down date. ARG |
If the consideration which MAR actually paid to PBL for the conveyance to it of the freehold in the barracks was only 847m, the largest amount given by one person for the scheme transactions was the 959m paid by PBL to the MoD. ARG |
In my view it is not necessary for this court to determine what is the correct sterling equivalent of the sums which MAR actually paid to PBL as I am persuaded, for the reasons set out below, that HMRC are correct that the consideration for MARs purchase of the barracks from PBL was 1.25 billion, but that PBL may claim... |
Mr Gammie does not dispute that it was open to PBL to make that claim. Ratio |
PBL asserts that it made that claim after the FTT handed down its decision. Ratio |
The starting point is paragraph 1(1) of Schedule 4 to the FA 2003 which defines the chargeable consideration in these terms: The chargeable consideration for a transaction is, except as otherwise expressly provided, any consideration in money or moneys worth given for the subject-matter of the transaction, directly or ... |
This provision might appear, by itself, to support PBLs case. Ratio |
But section 51 addresses contingent consideration. STA |
It provides so far as relevant: (1) Where the whole or part of the chargeable consideration for a transaction is contingent, the amount or value of the consideration shall be determined for the purposes of this Part on the assumption that the outcome of the contingency will be such that the consideration is payable or,... |
(4) This section has effect subject to - section 80 (adjustment where contingency ceases or consideration is ascertained) STA |
Section 80, which provides for the adjustment of a return where a contingency ceases or the consideration is ascertained, provides so far as relevant (as amended by sections 299 and 326 of and Schedule 42 to the Finance Act 2004): (1) Where section 51 (contingent, uncertain or unascertained consideration) applies in re... |
(2) If the effect of the new information is that a transaction becomes notifiable, or that additional tax is payable in respect of a transaction or that tax is payable where none was payable before - (a) within 30 days. STA |
(4) If the effect of the new information is that less tax is payable in respect of a transaction than has already been paid - the purchaser must make a return to [HMRC] the purchaser may, within the period allowed for (a) amendment of the land transaction return, amend the return accordingly; after the end of that peri... |
(Emphasis added in sections (2)(a) and 4(a) & (b)) STA |
PBL submits that because section 51 is subject to section 80 and section 80 requires reconsideration of the manner in which the SDLT code applies, it was incumbent upon HMRC or the courts to amend the land transaction return to reflect the actual chargeable consideration and thus the SDLT payable. ARG |
On that basis PBL asserts that the FTT erred in allowing HMRC to amend their statement of case to claim that the amount of SDLT which was payable was 50m. ARG |
But this is to mis- read section 80. ARG |
Subsection (1) speaks of the following provisions having effect to require or permit reconsideration. ARG |
The use of the disjunctive conjunction is significant. ARG |
Subsection (2) requires the purchaser to make a return where tax has been underpaid; but subsection (4), which applies where tax is overpaid, permits the taxpayer to amend the return or to claim the repayment. ARG |
This statutory asymmetry has the effect that section 51 operates to tax the contingent consideration and, under section 80, the taxpayer has to take the initiative to obtain repayment if new information shows that less tax is payable than has been paid. ARG |
There is no scope for the application of the Bwllfla principle, that where facts are available they are to be preferred to prophecies (Bwllfa & Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426), where Parliament has laid down the process by which the correct amount of SDLT which is paya... |
I conclude therefore that, subject to the human rights challenge, HMRC are correct in their assertion that the chargeable consideration for the notional transaction (section 75A(4) and (5)) is 1.25 billion and the SDLT due thereon is 50m. Ratio |
HMRCs calculation of that sum as the SDLT due is however subject to the right to claim under section 80. Ratio |
PBL recorded in its written case (footnote 134) that it made such a claim shortly after the decision of the FTT and that HMRC opened an inquiry into that claim, which has been left in abeyance pending the outcome of this appeal. Ratio |
As HMRC has not addressed this matter, I need say no more. Ratio |
(iii) Section 75B and the human rights challenge Ratio |
In the UT Morgan J interpreted section 75B, to which I will turn, as enabling the tribunal to determine that the chargeable consideration on the notional transaction under section 75A was the 959m which PBL had paid the MoD for the freehold of the barracks and not the 1.25 billion which MAR had contracted to pay to PBL... |
PBL accepts that on a black-letter reading of section 75B, where the financial institution provides more finance than the price which the customer pays for the land, the section 75A charge on the notional transaction will take account of the whole of the amount payable for the chargeable interest which the financial in... |
But it asserts that the manner in which section 75B is drafted indirectly discriminates against those of Islamic faith who may be expected to adopt Sharia financing techniques. Ratio |
Under conventional mortgage financing, SDLT would have been payable on the consideration for PBLs acquisition of the freehold in the barracks from the MoD (959m) and the security transaction would have been exempt, notwithstanding that the financial institution had provided additional finance. Ratio |
By contrast, if Sharia compliant finance is obtained, the additional sums provided by the financial institution would be subjected to the SDLT charge. Ratio |
PBL argues that the transactions fall within the ambit of article 9 of the European Convention on Human Rights (ECHR) (in particular the freedom to manifest ones religion) and of Article 1 of Protocol 1 (A1P1) (the entitlement to the peaceful enjoyment of ones property and the right not to be deprived of ones possessio... |
Article 14 of the ECHR requires public authorities to secure the enjoyment of such rights and freedoms without discrimination on a ground such as religion. ARG |
PBL submits that section 3(1) of the Human Rights Act 1998 requires the court to interpret section 75B in a manner which is compatible with article 14 read with article 9 and A1P1, and so to eliminate discrimination against those of the Islamic faith. ARG |
Section 75B provides (so far as relevant): (1) In calculating the chargeable consideration on the notional transaction for the purposes of section 75A(5), consideration for a transaction shall be ignored if or in so far as the transaction is merely incidental to the transfer of the chargeable interest from V to P. (2) ... |
(3) A transaction may, in particular, be incidental if or in so far as it is undertaken only for a purpose relating to - the construction of a building on property to (a) which the chargeable interest relates, the sale or supply of anything other than land, or (b) (c) a loan to P secured by a mortgage, or any other pro... |
(4) (5) The exclusion required by subsection (1) shall be effected by way of just and reasonable apportionment if necessary. STA |
In this section a reference to the transfer of a chargeable (6) interest from V to P includes a reference to a disposal by V of an interest acquired by P. STA |
Absent the question of ECHR compatibility, I am satisfied that section 75B does not assist PBL. Ratio |
Morgan J in the UT sought to use section 75B to avoid what he saw as an unreasonable result by two means. Ratio |
First, he accepted PBLs submission that subsections (1) and (6) refer to the acquisition by P of the chargeable interest disposed of by V and that interest in this case could only be the freehold as V (the MoD) did not dispose of the leasehold. Ratio |
Thus the only transfer which was relevant in section 75B was the transfer of the freehold from the MoD to PBL, to which the sub-sale by PBL to MAR was incidental. Ratio |
Secondly, he interpreted the words in so far as in subsection (1) as authorising the apportionment of the consideration which MAR provided to PBL for the freehold between (a) the sum which reimbursed PBL for the price which it paid the MoD for the freehold and (b) the sum which MAR agreed to provide to enable PBL to pa... |
He referred to PBLs submission that one could achieve this by reading into subsection (1) after the words in so far as the additional words the payment of the consideration or but said that it was not necessary to do so. Ratio |
I disagree on both points, for reasons which are essentially the same as those which Judge Nowlan advanced. Ratio |
In my view both section 75A and section 75B are difficult provisions to interpret and to apply to particular transactions. Ratio |
In summary, section 75A has been drafted in broad terms to catch a range of tax avoidance schemes and prevent unintended tax losses by the use within a series of transactions of a combination of reliefs and exemptions; and section 75B reduces the chargeable consideration of the notional transaction in section 75A(4) by... |
Looking at the matter in more detail, one starts with the chargeable consideration on the notional transaction in section 75A(5), which is calculated by reference to the scheme transactions which are the actual transfer or transfers by which a chargeable interest moves from V to P or P acquires a chargeable interest de... |
That chargeable consideration, as I have said, is the largest amount (or aggregate amount) given by any one person by way of consideration for the scheme transactions. Ratio |
Section 75B is framed to remove from those actual transactions (ie the scheme transactions of section 75A(1)(b)) any transactions which in accordance with its provisions are to be treated as incidental. Ratio |
To achieve this, the reference in section 75B(1) to the transfer of the chargeable interest from V to P is a reference to the actual transfer or transfers which are the subject of section 75A(1)(a) and (b). Ratio |
Support for this view comes from (a) subsection (6) and (b) subsection (2). Ratio |
Subsection (6) (a reference to the transfer of a chargeable interest from V to P includes a reference to a disposal by V of an interest acquired by P) makes clear that subsection (1) covers a case where P acquires from another party the interest which V has disposed of. Ratio |
Thus section 75B could be applied to the circumstance where, within the scheme transactions, V sold the freehold in land to B who sold on that freehold to P. Subsection (2) is framed to place limits on the scope of subsection (1). Ratio |
Subsection (2)(a), which provides that a transaction is not incidental if or in so far as it forms part of a process or series of transactions, by which the transfer is effected, is a reference to the scheme transactions in section 75A(1)(b) in so far as they form part of the process by which the relevant disposal and ... |
Subsection (2)(c) provides that a transaction is not incidental if it is of a kind specified in section 75A(3). Ratio |
That includes (in section 75A(3)(a)) the acquisition by P of a lease deriving from a freehold owned or formerly owned by V and (in section 75A(3)(b)) a sub-sale to a third person. Ratio |
To give effect to subsection (2) and achieve coherence both within section 75B and between that section and section 75A, the transfer of the chargeable interest from V to P in section 75B(1) and (6) must extend to the transactions to which section 75A(1)(a) and (b) and (3) refer, including the sub-sale to the third per... |
This interpretation is wholly consistent with the purpose of section 75B which is to reduce the consideration given for the transactions in section 75A(1)(b) which are to be taken into account in the section 75A(5) calculation of the consideration on the notional transaction. Ratio |
I therefore conclude that the transactions which transfer the chargeable interest from V to P in section 75B(1) include both the sub-sale to MAR and the grant by MAR of the lease to PBL. Ratio |
I am also not persuaded by the second argument which Morgan J favoured, namely that the words in so far as in section 75B(1) required the tribunal to apportion the 1.25 billion consideration which MAR paid between the purchase price of the barracks and other finance. Ratio |
Those words in subsection (1) appear to be addressing a composite transaction which in part is necessary for the disposal and acquisition, to which section 75A(1)(a) refers, and in part serves some other, incidental, purpose, such as any of those identified in subsection (3). Ratio |
That cannot assist PBL in this case because of the overriding effect of subsection (2). Ratio |
It is arguable that subsection (2)(a) may not provide an answer, for as PBL points out, it uses the same if and in so far as formulation as subsection (1). Ratio |
But subsection (2)(c) is unqualified and prevents the sub-sale to MAR from being incidental because that transaction was of a kind specified in section 75A(3), ie a sub-sale to a third person. Ratio |
Any appeal to the terms of section 75B(3)(c) is excluded by subsection (4)(c) which overrides it by the operation of the exclusion in subsection (2)(a) and (c). Ratio |
I therefore conclude that the 1.25 billion consideration which MAR contracted to pay to PBL is the relevant consideration under section 75A(5)(a) unless section 3 of the Human Rights Act 1998 requires the court to adopt a more expansive interpretation of incidental transactions in section75B(1). Ratio |
PBLs argument in support of its challenge under article 14 of the ECHR (para 66 above) is that if a conventional lender were to advance sums to its customer in excess of the purchase price of the land, the purchaser would pay SDLT on the purchase price and the financiers security interest would be disregarded under sec... |
In a section 75A exercise, section 75B(3)(c) would treat the security transaction (a transaction undertaken only for a purpose relating to - a loan to P secured by a mortgage) as incidental to the transfer of the land from the seller to the customer and therefore outside the calculation of the chargeable consideration ... |
But if, as in this case, the financial institution using an Ijara arrangement were to provide funds in excess of the purchase price, section 75A(5) would operate to penalise it by using the larger funding as the measure of the chargeable consideration on the notional transaction. Ratio |
This, says PBL, amounts to unjustified discrimination on the ground of religion contrary to article 14 read with article 9 of the ECHR and A1P1. Ratio |
As I have said, PBL invites the court to read into section 75B(1) the words the payment of the consideration or after in so far as so as to enable the consideration given by the financial institution for the purchase of land from its customer at the first step of an Ijara arrangement to be allocated proportionately bet... |
The FTT did not have to consider the merits of this challenge because it concluded that PBL had not established that it had entered into the Sharia compliant financing for religious reasons and that it had therefore not proved that it suffered discrimination on the ground of religion. Ratio |
Neither the UT nor the Court of Appeal had to address the argument because the UT by the presiding members casting vote held that the chargeable consideration was 959m and the Court of Appeal held that section 75A did not apply. Ratio |
I note in passing however that, but for the expiry of a time limit for HMRC, the Court of Appeals decision would have imposed a liability on MAR of 50m on the chargeable consideration of 1.25 billion, and in accordance with standard practice in Ijara arrangements the charge would have fallen on PBL by means of a tax in... |
I have come to the view that this court does not need to consider the ECHR challenge in detail because the matter can be determined on the simple bases (a) that any discriminatory effect is objectively justified and (b) that, in any event, PBL is not a victim. Ratio |
There is in this case no need to delve into the question whether the FTT was correct in holding that it had not been established that there was any discriminatory treatment. Ratio |
If one were, for the sake of argument, to accept that section 75A had had the potential to give rise to indirect discrimination on the prohibited ground of religion, in cases where the financial institution using Sharia compliant financing had provided funds to its customer beyond what was needed to fund the purchase o... |
HMRC advances as justification (a) the need to frame section 75A in broad terms to deal with the lacunas which were giving rise to tax loss and (b) the safety valve created by section 75C(11) and (12) which empowers the Treasury to disapply section 75A in specified circumstances, including making provision with retrosp... |
Thus HMRC argue that if the provision were shown to give rise to a systemic or frequent infringement of ECHR rights, Parliament had provided the mechanism by which such infringements could be avoided. Ratio |
In addition, section 75A(7) disapplies section 75A where the requirements of subsection (1)(c) are satisfied only because of the use of alternative property finance. Ratio |
Paradigm forms of Ijara arrangements are therefore protected. Ratio |
It is the tax loss occasioned by the combination of sub-sale relief and the alternative property finance which has given rise to the section 75A(5) charge in this case. Ratio |
That circumstance cannot recur after section 45(3) was amended in 2011. Ratio |
There is no evidence of any widespread use before 2011 of Ijara arrangements by means of a sub-sale to the financial institution and involving the provision of funds in excess of the purchase price of the land, as occurred in this case. Ratio |
And it is that combination which is the basis of the allegation of discrimination. Ratio |
The fact that a broadly worded provision may on occasion have a harsh effect on an alternative property finance transaction which is structured in a particular way is not sufficient to establish unjustified discrimination under article 14 of the ECHR. Ratio |
In any event, it is not disputed that PBL has a claim under section 80 for the repayment of any amount which is overpaid. Ratio |
If, as appears to be the case, the sterling equivalent of the consideration, which MAR actually paid to PBL for the barracks before the Ijara arrangement was brought to an end, was less than the 959m which PBL paid to the MoD, it is the latter figure which is the chargeable consideration under section 75A(5)(a). Ratio |
In that event, PBL is paying no more than it would have paid if it had used a conventional form of loan financing. Ratio |
It is therefore not a victim of discriminatory treatment. Ratio |
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