The High Court upheld a decision of the special commissioner that a chargeable gain accrued to a company under TCGA 1992, s. 179 when it left a group in respect of assets previously acquired from another company by way of an intra-group transfer, since exemption from the degrouping charge in s. 179(2) was not available to companies associated when they left the group but not at the time of the intra-group transfer.

Facts

The taxpayer company had been acquired as an off the-shelf company and became a member of a group (‘the UNM group’) within the meaning of TCGA 1992, s. 170. In a series of transactions another member of the group (‘UPN Ltd’) transferred shares in its operating subsidiaries to the taxpayer. At that stage the taxpayer and UPN were not associated. However, by the time it was sold to another group (‘YPG’), the taxpayer owned the transferor company as its subsidiary and they had become associated companies within s. 179(10).

HMRC considered that on the sale to YPG a charge under s. 179 arose on the taxpayer in respect of the operating subsidiaries it had acquired from UPN when both companies were members of the UNM Group. The taxpayer appealed unsuccessfully to a special commissioner who concluded that it was appropriate to construe strictly the exemption contained in s. 179(2). The taxpayer appealed to the High Court contending that it was exempt from the charge under s. 179 by virtue of s. 179(2) since it was associated with UPN under s. 179(1)) when it left the group. The Revenue argued that, on the proper construction of s. 179(2), companies leaving a group had to have been associated at the time the acquisition took place, and not just at the time they left the group, so that the deeming provisions in s. 179(3) applied. If the taxpayer's interpretation was correct, the second use of the word ‘associated’ in s. 179(2) would be redundant.

Issue

Whether, in order to qualify for exemption from the capital gains degrouping charge imposed under TGCA 1992, s. 179(3), it was necessary that associated companies should have been associated not only at the time of leaving the group but also at the time of the previous intra-group transfer.

Decision

Lindsay J (dismissing the appeal) said that each side sought to envisage anomalous consequences which the other side's construction would lead to. That was a perfectly respectable technique, especially in the construction of taxing statutes but it had its limitations. First, a construction by way of suggested comparative anomalies could not displace the plain meaning and intendment of the statutory language. Secondly, it was far from every anomaly, even when it was demonstrated, that had a displacing effect; it could be that Parliament had been content to tolerate some minor ones. It was only when the anomaly was such that it had to be taken by the court not to have been intended by Parliament that it had a displacing effect. Thirdly, there might be displacing effects operating in opposite directions, leading the court to ignore anomalies and to revert to a pure construction of the statutory words themselves. Fourthly, the intra-group deeming provisions, with which this appeal was concerned, had long been recognised as having anomalies which had to be tolerated (see NAP Holdings UK Ltd v Whittles (HMIT) [1994] BTC 450). The question was as to the effect of the use of the word ‘associated’ for a second time in s. 179(2). The taxpayer's argument provided no explanation for the second appearance of ‘associated’ save to say that it was an elementary and precautionary drafting device. However, given the very short distance between the first appearance of the word and the second, and given that the taxpayer's meaning would have been so readily achieved without that second appearance of the word, the taxpayer had no adequate explanation for its second appearance.

By contrast, the Revenue's argument that, in effect, the latter part of s. 179(2) should read ‘as respects an acquisition (while they were associated) by one from another of those companies’ was something which the courts not unreasonably could infer from that second appearance of the crucial word, especially where it appeared in a section which, as was shown in the case of Dunlop International AG v Purdoe (HMIT) [1999] BTC 392, was drafted in a very compressed style. In all the circumstances, the court was unable to say that the special commissioner was wrong to attach real weight to the redundancy argument and preferred, in point of construction, that the acquisition spoken of in the later part of s. 179(2) was between a disponor and a disponee who, at the time of the acquisition, were associated with one another in the sense required by s. 179(10).

Chancery Division.
Judgment delivered 14 March 2007.