In the latest of a line of cases in relation to whether bonds fall within the qualifying corporate bond ("QCB") regime (and therefore benefit from an exemption from capital gains tax), the Court of Appeal was asked to determine whether a mechanism which provided for the currency of certain bonds to be redenominated from sterling to euros in the event that the UK adopted the euro as its national currency prevented the bonds from being QCBs. This was on the basis that the terms of the bonds provided for conversion into or redemption in a currency other than sterling where any such redemption was not a simple spot rate conversion on the date of redemption. The Court of Appeal disagreed with the Upper Tier Tribunal and held that the bonds retained their status as QCBs because the conversion into euros and the fixed rate at which the UK would enter the euro meant that the euro redemption would be at the rate of exchange prevailing at redemption. Rather than viewing the mechanism as a way for the securities to be converted into a currency other than sterling, the Court of Appeal sided with the taxpayer by agreeing that the mechanism set out a way for the securities to be redeemed in another currency in the event that the national currency of the UK changed from sterling.

The case highlights how relying on technical provisions in bond (or other) terms might prove dangerous when they are being relied on to give a desired tax result from a transaction.