UK and International Tax news

UT Allows Appeal In Expenses Of Management Case

Tuesday 31st August 2021

The Upper Tribunal has recently heard an appeal against a decision of the First tier Tribunal  refusing a claim for corporation tax relief in respect of expenses of management of an investment business.

In Centrica Overseas Holdings Ltd v HMRC [UKUT 0200 TCC], the appellant (COHL) incurred certain professional costs which it claimed were expenses of management.  These related to advice received in connection with the disposal of certain assets owned by subsidiary companies of COHL. HMRC refused such claims and, in particular, considered that COHL had not established a sufficient link between the disputed expenditure and any investment business of COHL.

COHL was an intermediate holding company in the Centrica Plc group of companies which owned 100% of the share capital of Oxxio BV, a Dutch holding company which itself had four subsidiaries registered in the Netherlands. Assets of two of those subsidiaries and the shares in a third subsidiary were sold to a third party company in March 2011. Professional fees totalling £2.5m were paid in connection with the transaction relating to services from Deutsche Bank AG London, PwC and De Brauw Blackstone Westbroek.

There were four issues before the UT, being:

1.The basis on which the FTT determined that the disputed expenditure was not expenses of management of COHL’s investment business, and was it entitled to do so as a matter of law.

If the UT found in favour of HMRC on this issue, then COHL’s appeal must be dismissed. If it found in favour of COHL however, then the following issues arise:

2. Whether the disputed expenditure amounted to expenses of management, or expenses of the disposal of Oxxio assets?

3. Did the Deutsche Bank fees amount to expenses of management if they were in the nature of success fees?

4. Was the disputed expenditure capital in nature such that it fell to be disallowed as expenses of management?

On examination of the FTT’s findings of fact, the UT held that COHL was managing its investment business and the FTT was wrong to conclude otherwise.

The UT held that the FTT was entitled to conclude that the Deutsche Bank fees and the PwC fees prior to 22 February 2011, when formal board approval was given to the transaction, were expenses of management.  The UT however referred the fees of DB back to the FTT for redetermination.

With regard to the success fees, the UT held that the FTT was right to find that in substance the fees were for services which enabled COHL to decide whether and how to dispose of the Oxxio business. The fact that the fixed fee was only payable on completion of the transaction did not change the nature of the expense so as to make it part of the cost of disposal.

On the fourth issue, the UT considered the decisions in Sun Life and Camas and held that the FTT was right to conclude that the Deutsche Bank and PwC expenses were not capital in nature. COHL’s appeal in relation to the expenses of De Brauw was remitted back to the FTT for redtermination.

For further details on this case, please contact Keith Rushen on 0207 486 2378.


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