The recent cases of Olivia Wilkinson & Ors v HMRC  FTT 695 and Delinian Ltd (Formerly Euromoney Institutional Investor PLC) v HMRC  EWCA Civ 1281 provide welcome guidance on when transactional tax planning might result in a taxpayer acquiring a tax avoidance main purpose.
In each case, the taxpayers had sought to rely on share-for-share exchange relief to defer the tax arising on the sale of their shares until the future disposal of their rollover securities. However, HMRC subsequently raised assessments, arguing that the exchange formed part of a scheme or arrangements the (or a) main purpose of which was the avoidance of tax.
In Wilkinson, the taxpayers made a pre-sale gift of shares to their daughters and negotiated terms allowing them to access entrepreneur's relief on the later disposal of their rollover securities. HMRC argued that these tax-driven aspects of the transaction amounted to self-standing "arrangements" capable of disqualifying the entire exchange from relief.
The FTT disagreed. It was "wrong" to over-complicate the "straightforward" statutory test by attempting to identify subsidiary arrangements of which the exchange may also have formed part when it "quite obviously" formed part of the overall arrangements for the sale of the taxpayers' shares. The taxpayers' main purpose therefore needed to be considered in this wider context.
Finding that the taxpayers did not have a tax-avoidance main purpose, the FTT considered the modest value of the anticipated tax benefits (relative to the wider commercial benefits of the sale) to be significant. It was also a factor that the taxpayers would have "walk[ed] past" such tax benefits rather than jeopardise the sale.
In Euromoney, shares were sold for redeemable preference shares, rather than cash. This enabled the taxpayer to defer the tax arising on sale until it could access the substantial shareholding exemption (at which point it would redeem the preference shares tax-free).
HMRC challenged the correct identification of the "arrangements", arguing that all possible schemes or arrangements of which the exchange formed part should have been identified before considering the taxpayer's purpose in respect of each of them. This was rejected by the Court of Appeal. The identification of the scheme or arrangements was a question of fact, but it was clear that it had to comprise the entire exchange and that it was the whole of the scheme or arrangements that needed to be considered rather than selected parts.
The decisions In Olivia Wilkinson and Euromoney helpfully confirm that a taxpayer's purpose will usually need to be considered in the context of the transaction as a whole. They also illustrate the types of factors relevant to evaluating whether a purpose is a main purpose beyond the taxpayer's stated intentions.