© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
F7. Similar situations
Fine distinctions often have to be drawn when applying taxing provisions
"[107] I agree that fine distinctions often need to be made when applying taxing provisions. As this court has said previously in the context of applying VAT regulations, decisions about the application of taxing provisions are highly dependent on the factual situations involved. "A small modification of the facts can render the legal solution in one case inapplicable to another": see Revenue and Customs Comrs v Aimia Coalition Loyalty UK Ltd [2013] UKSC 15, [2013] 2 ALL ER 719, para 68. I am less sanguine about whether the Contracting States are likely to have drawn the boundary between their taxing rights on that basis, or whether such a fine distinction has any equivalence in Canadian land law. As noted in para 11 above, the model licence clauses set out in the 1966 Regulations that had to be incorporated in the licences granted by the UK Government require the Government's consent to both the assignment and the sub-licensing of the rights." (HMRC v. Royal Bank of Canada [2025] UKSC 2)
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- Lack of any obvious explanation for treating similar situations differently not justifying departure from ordinary interpretation
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"[38] The only countervailing consideration, to my mind, is the lack of any obvious explanation, in the statutory history or otherwise, of the different treatment of this form of loss relief. In a post-hearing note Mr Nawbatt gave a detailed account of the treatment of the various forms of loss relief under the previous legislation. This shows, as is common ground, that the pre-2007 law did not draw any material distinction between share loss relief (section 574 ICTA 1988), and trade and employment loss relief (section 380 ICTA 1988). Mr Nawbatt was also able to point to some indications in the ITA Explanatory Notes (eg in respect of section 1025, which is not directly relevant to the present case) that the authors of the notes may have assumed that share loss relief would be subject to TMA Schedule 1B, in the same way as the other forms of relief. However, taken at their highest, these indications are far from providing a basis for departing from the ordinary principles of statutory interpretation, absent any suggestion that they produce a result which is absurd or unworkable. Indeed, for the taxpayer’s liability to be determined by reference to legal archaeology of this kind would negate the whole purpose of the tax law rewrite. It is neither necessary nor appropriate for the court to speculate as to Parliament’s intentions to justify a departure from the natural interpretation of the statutory language."​ (R (oao Derry) v. HMRC [2019] UKSC 19)
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- Parliament decided to draw a bright line test which inevitably leads to anomalies at the border
“The requirement that a Company must certify to HMRC that all the conditions of EIS relief (including that in section 173(2)(aa)) are satisfied, effectively required the Company in this case to make a declaration to HMRC that the shares being issued did not carry any preferential rights to assets on a winding up. That requirement 5 seems to us a clear “bright line” test (as Mr Pritchard described it), which would have been much easier for a company officer to understand, than a test which, on Mr Howard’s argument, required an application of the de minimis test or a test which required “a normal commercial interpretation” of the words “carry…any… preferential right”. We therefore reject Mr Howard’s submission.” (Flix Innovations Limited v. HMRC [2016] UKUT 301 (TCC), §49, Mann J and Judge Brannan).
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“The plain legislative intent is to draw a clear, and readily understandable, dividing line between those debt securities which are exempt from CGT and those which are chargeable. That will inevitably lead to some cases where there is a difference in treatment even though a similar economic result may obtain. That is nothing more than a normal incident of the drafting of statutory conditions defining a particular statutory concept that has no independent existence outside the terms set by the legislation. That outcome is, with respect to the FTT which thought otherwise, neither illogical nor absurd. It is not for the tribunal to fill any perceived gap, or to seek to equate cases on one side of the dividing line with similar cases falling on the other side by reason of similarity in effect or economic equivalence. Purposive construction cannot go so far. To construe such legislative conditions in that way would risk undermining rather than applying the distinction determined upon by Parliament according to the plain words of the legislation.” (HMRC v Trigg [2016] UKUT 165 (TCC), §57, Asplin J and Judge Berner).
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- Wrong to assume that economically equivalent transactions taxed in the same way
​"There is no doctrine of UK tax law that economically equivalent structures should be taxed the same. The appellant was a stand-alone company in the contested period, which is in a different position to a company that has a dormant subsidiary as it is considered for tax purposes to be a group of companies. There may be tax advantages and disadvantages to both structures. Groups of companies are often treated differently for tax purposes to stand-alone companies (e.g., in the treatment of transfers/disposals within groups)." (M Group Holdings Limited v. HMRC [2023] UKUT 213 (TCC), Green J and Judge Ramshaw)
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"[35] However, in our judgment, the discussion of these scenarios does not establish any “special statutory context”. At most they establish that economically similar transactions might be taxed differently if the phrase “by him or on his behalf” is held to be limited to situations involving agency. However, that is not a particularly startling outcome. Economically similar transactions are not infrequently taxed in different ways. More generally, scenarios (i) to (iii) are products of the ingenuity of lawyers litigating a particular issue arising out of s38(1)(b). They do not address the more “mainstream” situation where a person owning an asset incurs expenditure either directly, or through an agent, on the improving of that asset and so are less capable of establishing a “special statutory context” that displaces the ordinary and natural meaning of the words." (Lowe v. HMRC [2022] UKUT 84 (TCC), Marcus Smith J and Judge Jonathan Richards)
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"[32] The process of statutory construction will thus reveal, among other things, the relevance or otherwise of the economic effect of transactions. It is wrong, however, to assume that economically equivalent transactions should be taxed in the same way. As Lord Greene MR said in Inland Revenue Commissioners v Wesleyan and General Assurance Society (1946) 30 TC 11, 16: 9
"In dealing with income tax questions it frequently happens that there are two methods at least of achieving a particular financial result. If one of those methods is adopted, tax will be payable. If the other method is adopted, tax will not be payable.”
[33] [The taxpayer] sought to depict Wesleyan as out of date, pointing to Viscount Simon’s endorsement in the House of Lords of Lord Greene MR’s statement by reference to Duke of Westminster v IRC 19 TC 490 and suggesting things had moved on since that case. However, as [HMRC] pointed out, Wesleyan was expressly approved by Lord Wilberforce in Ramsey and we consider that it clearly remains good law." (Khan v. HMRC [2020] UKUT 168 (TCC), Judge Raghavan and Judge Andrew Scott)
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"[20] Two important points emerge from the Overdrive case. First, it is necessary to give effect to the legal result of a particular transaction however artificial that may seem. Secondly, the discharge by an employer of a debt incurred by an employee represents earnings paid on behalf of that employee for the purposes of the national insurance regime. The court is clearly focusing on the employee and identifying what, depending on the nature of the transaction, he gets, whether directly, namely the petrol or indirectly, namely the discharge of a debt owed by him. In the latter case, he gets the equivalent of a payment in cash." (Tullett and Tokyo Forex International Ltd v. Secretary of State for Social Security [2000] EWHC Admin 350, Collins J)
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- Or principle that taxpayers in objectively similar situations should receive similar tax treatment
"[75] We test that conclusion by asking ourselves what the outcome would be if the opposite view were taken and a broad meaning were adopted. Two problems come into view. First, that would open the door to an obvious risk of abuse and avoidance of tax because BPRA could be claimed on expenditure of all sorts, even where the connection with the conversion (or renovation or repair) works was tenuous. Secondly, that could lead to unfairness between taxpayers, because the position could differ fundamentally between cases where the property comes into use for the purposes of the taxpayer's own trade (or, as in this case, that of a related party) and where it is let or available for letting to a third party tenant; it could also differ between cases where a structured arrangement is put in place as it was in this case and other cases where works are funded more conventionally. The desirability of construing tax legislation in a way that leads to fairness as between taxpayers was emphasised by Lord Wilberforce in Ben-Odeco v Powlson. He referred at p. 1098 B-C to "the principle of the laws of taxation … that, in the absence of clear contrary direction, taxpayers in, objectively, similar situations should receive similar tax treatment". Lord Hailsham made a similar point at p. 1100 G. We do not consider that Parliament can be taken to have intended this legislation to be construed in a way which leads to the sort of perverse outcomes we have identified." (London Luton Hotel BPRA Property Fund LLP v. HMRC [2023] EWCA Civ 362, Whipple, Falk, Lewison LJJJ)
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- "Incredible" if possibility of a loan treated more harshly than an actual loan
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"To a limited extent, particularised in the Section, any such capital sum would be treated for all the purposes of the Income Tax Acts as the income of the recipient for that year. It seems to be incredible that the mere possibility of a loan being made should bring upon the settlor the severe consequences set out in Section 38 (4) if the actual making of a loan only brings about the less severe consequences set out in Section 40." (Vestey v. IRC 31 TC 1 at 115)
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