| REVENUE — Capital gains tax — Group of Companies — Transfer of assets between companies in same group — Companies not “associated” at time of transfer but becoming so later — Companies together ceasing to be members of group — Whether transfer of assets between companies giving rise to capital gains charges — Whether exemption to charge applicable — Taxation of Chargeable Gains Act 1992, s 179(2)(10)
Johnston Publishing (North) Ltd v Revenue and Customs Commissioners [2008] EWCA Civ 858; [2008] WLR (D) 253
CA: Tuckey, Toulson LJJ and Sir John Chadwick: 23 July 2008
In order for companies to qualify for exemption from a taxable charge under s 179 of the Taxation of Chargeable Gains Act 1992, they had to be “associated” not only at the time of leaving the group but also at the time of the relevant intra-group transfer. On the proper construction of the section, the use of the word “associated” on its second appearance was not redundant but required the court to consider whether that word was intended to serve some purpose and was not redundant.
The Court of Appeal so held by a majority (Toulson LJ dissenting) in dismissing the appeal of Johnston Publishing (North) Ltd, the taxpayer, from the order of Lindsay J on 14 March 2007 [2007] EWHC 512 (Ch); [2007] Bus LR 1172 dismissing the taxpayer’s appeal from the decision of the special commissioner, Mr John Clark, on 9 October 2006, upholding the Revenue’s contention that on a proper construction of s 179(2) of the Taxation of Chargeable Gains Act 1992, the taxpayer was not exempt from taxation on a chargeable gain in respect of its acquisition of an asset from another company in the same group since the two companies were not “associated” at the time of the acquisition.
SIR JOHN CHADWICK said that the appeal was advanced on the ground that the judge was wrong to construe s 179(2) as requiring that not only should the companies leaving the group be associated companies (within the meaning of s 179(10)) at the time when they left the group; they should also have been associated companies at the time when the one acquired from the other the relevant asset. His Lordship was not persuaded that the expression “associated companies” was a defined term which the draftsman could be expected to use when referring (in the second limb of s 179(2)) to the companies which he had identified in the first limb of that section. Dunlop International AG v Pardoe [1999] STC 909 illustrated that, even on the construction advanced on behalf of the taxpayer in this case, there would be two distinct points of time — immediately before and immediately after the sub-group of which they were members leave the principal group — at which the requirement that company A and company B be associated companies had to be satisfied. His Lordship rejected the submission that it was obvious from the words used that the judge had been plainly wrong to reject the view that there was only one point of time — the time at which the two companies ceased to be members of the principal group — relevant for the purposes of, now, s 179(2). In the Dunlop case [1999] STC 909, 920e-f his Lordship had identified the mischief which the section was designed to counter. The object was to prevent the transferee from taking the asset out of the group without crystallising the gain (and the liability to tax) which would have arisen (had the transferor and transferee not been members of the same group) at the time that the transferee acquired the asset. The effect of the exit charge was that, in practice, the group would bear a loss equal to the amount of tax which would have been chargeable if the original acquisition had not been the subject of an intra-group transfer.
TUCKEY LJ agreed. TOULSON LJ delivered a dissenting judgment.
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