UK and International Tax news
FTT Dismisses Appeal Against Degrouping Charge
Tuesday 12th August 2025
The FTT has recently dismissed an appeal against a degrouping charge relating to goodwill acquired intragroup.
In Currys Retail Ltd v HMRC [2025 UKFTT 00762 TC], the FTT had to consider the application of s.179(3) TCGA92 to the goodwill relating to four businesses which had been transferred to the Appellant, formerly The Carphone Warehouse Limited (“CPW”), between 2004 and 2007, in consequence of CPW’s leaving the UK chargeable gains group headed by CPWG plc in 2008.
The degrouping arose out of an arrangement entered into between the corporate group headed by CPWG plc (the “CPW Group”) and the corporate group headed by Best Buy Co. Inc (USA) (“BBCo”) (the “BB Group”).
Where a company leaves a UK chargeable gains group owning an asset, other than a trading asset, which it has acquired from another member of the same UK chargeable gains group within the previous six years, then the company is deemed to dispose of and immediately reacquire that asset at the market value of the asset at the time of the intra–group acquisition.
Over the period between CPW’s acquisition of the businesses from the other CPW group companies [2004 to 2007] and the decision of the CPW Group to enter into the joint venture which led to the degrouping in 2008, changing market conditions and falling profits had led the value of the goodwill to reduce considerably. At the time of the original intra group transfers, the goodwill had a value of about £108m. By the time CPW was going to leave the CPW Group, the goodwill was valued at about £51m. If CPW left the CPW Group holding the goodwill, CPW would become liable to a degrouping charge under s.179(3) on value which no longer existed.
On 25 June 2008, CPW and BBUK, which, at the time, were unrelated parties, entered into a sale and purchase agreement (SPA) and a management services agreement (MSA). The SPA provided for CPW to sell to BBUK the goodwill and the right to carry on the businesses for a consideration of £50,800,000, with £50,799,000 apportioned to the goodwill.
The SPA specifically envisaged that CPW and BBUK would enter into the MSA, which provided for CPW to operate and manage the businesses on BBUK’s behalf in return for a management charge equal to 95% of the revenues of the businesses. The management charge was subsequently reduced by agreement to 91.19%.
On 30 June 2008, CPW ceased to be a member of the CPW chargeable gains group upon the formation of a joint venture between the CPW group and Best Buy group.
After CPW filed its company tax return for the accounting period ended 31 March 2009 on the basis that no degrouping charge arose, HMRC opened an enquiry into the return in February 2011.
In August 2020, HMRC issued a partial closure notice which concluded that a degrouping charge under s.179(3) arose on circa £108m of goodwill attached to the businesses on formation of the joint venture between the CPW Group and the BB Group. On that basis, HMRC determined that additional corporation tax of circa £30m was due. In September 2020, CPW appealed to HMRC and, following further correspondence, lodged an appeal with the FTT against the conclusion and amendment set out in the PCN in October 2022.
Issues before the FTT included whether at the time of leaving the CPW chargeable gains group, CPW continued to hold the goodwill. Legal authorities showed that goodwill was an asset which could not exist independently of the business to which it related. In CIR v Muller, Lord Macnaghten had noted that “goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business”.
The FTT reviewed the wording and effect of both the SPA and the MSA to assess whether the goodwill and the businesses were actually transferred when the agreements became effective.
In dismissing the appeal, the FTT held that on a realistic view of the facts, the agreements made no provision for the transfer of the businesses to BBUK and, after the agreements became effective, CPW continued to carry on the businesses as principal and not as agent for BBUK. Given this, both the goodwill and the businesses remained with CPW after the agreements became effective.
In addition, the asset which BBUK acquired in return for its payment of £50,800,000 was neither the goodwill nor the businesses but rather the right to receive payments equal to a fixed percentage of the future gross revenues of the businesses.
If you would like more detail on the above decision, please contact Keith Rushen on 0207 486 2378.
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