Appointment of receivers in respect of a group entity takes “control” of that entity outside the group for tax purposes, but does this decision have more far reaching consequences?
The First Tier of the Tax Tribunal heard appeals against closure notices issued by HMRC denying claims for group relief by a group of companies, including a company over whose assets a fixed charge receiver (FCR) had been appointed (the Borrower).
Albeit that the FCR was only appointed over the fixed charge assets, it had wide powers in respect of the Borrower pursuant to the debenture (including the powers set out in Schedule 1 to the Insolvency Act 1986). As a matter of tax law, in order for a group to claim relief it must be shown that all of the entities in the group are under “control” of the same entity. HMRC argued that the appointment of the FCR took control of that entity outside the group. The group argued that it did not.
The Tribunal held that the appointment of the FCR constituted “arrangements” pursuant to s154 of the Corporation Tax Act 2010 raising the question as to whether control of the Borrower remained with the group. The Tribunal held that it didn’t and placed much reliance on the powers granted to the FCR as evidence that the FCR controlled the Borrower, not just the assets over which it was appointed and therefore, as a matter of statutory interpretation, that the Borrower fell outside the group for tax relief purposes.
This decision obviously has tax relief consequences, but potentially has further reaching consequences on the position of a FCR and his/her position vis a vis a borrower. The generally held position is that a FCR is only appointed over a borrower’s assets, not the borrower itself, contrary to this decision and whilst you may be able to distinguish this decision as only relating to tax legislation, it remains to be seen whether the decision is used to support an extension of the role of a FCR.