The Commissioners for HMRC v Raj Sehgal & Anor

Mr Stone addressed the grounds of appeal in order, save that he left Ground 1 to last because HMRC would only need to succeed on that ground to satisfy Condition A if we decided that the FTT had been wrong to decide the “service analysis” in favour of HMRC. After addressing the grounds of appeal, he then turned briefly to the Respondents’ notice.

As a general proposition, Mr Stone submitted it was “trite law” that the correct approach to interpretation was “to ask whether the relevant statutory provisions, construed purposively, were intended to apply to the transactions under consideration, viewed realistically.” He cited Lord Reid in UBS AG v HMRC [2016] 1 WLR 1005 in support.

He also submitted that the FTT had been correct to accept that section 809L was an anti-avoidance provision. As such, it was drafted broadly and without restrictive definitions of the basic concepts it relied on such as “property” and “service”.

There was, as the FTT had found, some explanatory material available to assist in revealing the statutory purpose of the provisions. The main part of this was the explanatory note accompanying the clauses which provided for the introduction of what is now Chapter A1 Income Tax Act 2007. The note stated that “the Schedule also introduces measures to address a range of existing loopholes, flaws and anomalies in the remittance basis.” It went on to say this:

In the light of this, he submitted that the legislation was aimed at taxing gains that were not “genuinely” kept offshore, and which were “in effect” remitted to the UK “in such a manner that the individual has the use or enjoyment of them in the UK.” This invited a broader enquiry than simply considering the physical location of property or of provision of services.

Mr Stone took issue with the FTT’s preliminary statement at [142], when discussing this issue, that in order to give rise to a tax charge, the property or service in question “must ‘derive from the chargeable gain’”. He pointed out that the legislation was broader than this, covering all property and any service which “derives (wholly or in party, and directly or indirectly) from the income or chargeable gain”. He submitted that the FTT had also misdirected itself by considering the “gain” in question to have arisen on the sale of the shares in VGL, whereas in fact it had arisen on the redemption of the loan notes into which the gain had been rolled over.

In Mr Stone’s submission, the correct analysis was as follows. The reason that the property and/or services were derived from the chargeable gain was because part of the gain made on the redemption of the loan notes was invested by the Taxpayers into SKS and then transferred to Miles in order to bring about the release of the Indemnity and the waiver of IR’s debt to VL; and since that release and waiver were clearly conditional upon the payment being made to Miles, the property and/or services which they represented were clearly derived indirectly from the chargeable gain.

Mr Stone submitted that the FTT had failed to properly analyse the actual transactions that had taken place, by inappropriately eliding the property and/or services with the satisfying of the liability under the Indemnity. The Compensatory Transaction (as the FTT had described it) comprised a set of transactions with very clear legal consequences and was specifically designed to avoid there being any payment under the Indemnity; it was therefore inappropriate to treat it as being equivalent to such payment.

Mr Stone argued that the FTT had failed to consider HMRC’s alternative argument that Condition B was satisfied because the Taxpayers had used their chargeable gains outside the UK (directly or indirectly) in respect of a relevant debt, namely the debt owed by IR to VL. This debt, he submitted, was “related to” the property and/or service – namely the waiver of that debt by Centennial.

Mr Stone also submitted that the FTT had not given any proper consideration to the “money analysis” because it had concluded that any “money” would not have been derived from the chargeable gains of the Taxpayers, any more than the supposed property and/or service would have been, and accordingly Condition B could not have been satisfied.

In his submission, Condition A was satisfied because money (being the proceeds of the redemption of the loan notes) had been “used” in the UK for the benefit of both the Taxpayers and IR (a “relevant person”) because the effect of its payment, though made overseas, was to benefit both the Taxpayers and IR by relieving them from their respective obligations (under the Indemnity and under the debt due to Visage respectively); in each case, the benefit accrued in the UK: for IR because it was a UK resident company which was relieved of the obligation to pay a trade debt to another UK resident company, and for the Taxpayers because they were also UK resident individuals who were relieved of an obligation to pay under the Indemnity. In both cases, the relevant obligations were governed by English law.

So far as Condition B was concerned, he argued the FTT had simply not addressed HMRC’s argument that subsection 809L(3)(a) applied because the money used, rather than being derived from the chargeable gain, was (in part) the chargeable gain because it was the proceeds of the part redemption of the loan notes.

In response to a point raised by Mr Firth, Mr Stone acknowledged that this analysis (proceeding on the basis that the money was “used” in the UK) was inconsistent with his position in relation to “relevant debt” (where, a fortiori, the money had to be “used” overseas), but since these arguments were being advanced as alternatives he submitted that the inconsistency did not matter.

Before he made much progress in his submissions to us on this ground, we indicated to Mr Stone that he would face significant difficulties in persuading us that the FTT’s conclusion on the “property analysis” was wrong. After taking instructions, he confirmed that HMRC did not wish to press this ground of appeal before us and we therefore heard nothing further from him on it. Beyond repeating the reservations that we expressed to Mr Stone, therefore, we say nothing further on the matter.

Mr Stone sought to uphold the FTT’s finding on this point, essentially for the reasons given by the FTT. To summarise, given the purpose for which the legislation had been enacted, the word “service” ought not to be given a restrictive meaning. The service in question was that provided by Centennial when it agreed to waive the debt due from IR to Visage and the Taxpayers’ obligations under the Indemnity. Centennial itself was not IR’s creditor and therefore by providing something of value to IR and the Taxpayers, it was providing a service. The service in relation to the IR debt was provided in the UK because that debt was owed by one UK resident company to another in an agreement governed by English law; from IR’s perspective therefore the service was enjoyed in the UK. In relation to the Indemnity waiver, the most important determinant was that the liability being waived was “located” in the UK.

Mr Firth’s overarching general point was that the FTT had been correct to decide Condition B was not satisfied because, in substance, the transaction did not remit any gain to the UK; on the contrary, it amounted to handing back part of the consideration to the Li & Fung group, reducing the gain. To decide otherwise would be to prefer form over substance. In his words, “[t]he legislation aims to tax persons who realise a gain and bring it to the UK, not persons who receive money at one point in the process of completing a sale, but are compelled to hand it back.”

Mr Firth argued that Mr Stone’s criticisms of the FTT Decision at [32] above were misconceived. So far as the lack of any reference at [142] of that Decision to “wholly or in part, and directly or indirectly” was concerned, it was clear from the FTT Decision when read as a whole that the FTT had those words in mind; and whether the gain arose on the sale of the shares in VGL or on redemption of the loan notes made no difference to the legal analysis – in either case, the gain was in part reversed as a result of the payment by the Taxpayers.

So far as HMRC’s other arguments were concerned, the FTT had clearly considered them and had reached the view that in substance, the effect of the Compensatory Transaction was to reverse (in part) the gain. That was a finding that was open to it on the facts and was unimpeachable.

Mr Firth argued that for money to be “used” in the UK, it would have to have been paid in the UK; the mere fact that a UK resident might benefit from its payment was irrelevant. The statutory question was not where a “benefit is enjoyed”, but where the money is used, which Mr Firth submitted to be where it was actually paid.

This was reinforced by HMRC’s own guidance issued to the Chartered Institute of Taxation (“CIOT”) in 2012 by way of a response to a letter dated 15 June 2012 from the CIOT to HMRC. The CIOT had expressed concern about the potential “remittance” implications of overseas payments by UK resident non-domiciled individuals out of foreign income or gains as part of divorce settlements. The CIOT’s analysis included the phrase “As the Payment is made outside the UK, the Capital Sum is not brought into (or used in) the UK by any relevant person at that stage”. It went on to say “The only contrary point may be if it could be argued that H might indirectly be said to be enjoying the property in the UK by virtue of being relieved of something which was otherwise his obligation and/or he has received value in the UK.” The CIOT’s final analysis of the point was that “Condition A requires property to be brought to, used or received in the UK by H or a relevant person in relation to him. As the payment is made outside the UK by H (ie the Capital Sum is not brought to used or received in the UK by him), Condition A is not fulfilled by the Payment.” In their response to the CIOT, HMRC said that they “agree your conclusion that no taxable remittance will arise for the reasons given in your letter.”

Furthermore, he pointed out that HMRC’s alternative “relevant debt” argument proceeded on the assumption that the money in question was used outside the UK and not within it; whilst it was clearly open to HMRC to advance their case on alternative bases, complete self-contradiction was another matter altogether, especially bearing in mind that the statutory “relevant debt” rule explicitly applied where “the income or chargeable gains are used outside the United Kingdom (directly or indirectly)”.

Mr Firth argued that this ground of appeal should fail for three reasons. First, the funds used did not represent or derive from the gain, they reduced and in part reversed it (effectively, see Ground 2 above). Second, he submitted there was no “relevant debt”. Third, the money was not “used in respect of” the IR debt.

The first point required no further development as it had already been covered by his argument under Ground 2 above.

As to the second point, a “relevant debt” is defined in subsection 809L(7) as “a debt that relates (wholly or in part, and directly or indirectly) to” either property or a service falling within Condition A. HMRC were seeking to characterise Centennial as providing a service here, arguing that the “relevant debt” in question was IR’s debt to VL. It could not sensibly be argued that IR’s (pre-existing) debt to VL in any way “related to” the supposed service being provided by Centennial, rather the contractual right to the waiver (or non-pursuit) of the IR debt might be said to relate to that pre-existing debt (in the same way that a contract for the sale of a house could be said to “relate to” the house, but it would be a nonsense to say that the house “related to” the contract).

As to the third point, since the payment had also resulted in the waiver of the Indemnity liabilities, it was appropriate to consider what that payment ought to be considered as being “in respect of”. Given that IR was unable to pay its debt in any event but the Taxpayers were clearly able to pay their liabilities under the Indemnity, on any sensible view the payment was “in respect of” the latter rather than the former, with the waiver of the IR debt simply being an ancillary or incidental consequence.

As HMRC had confirmed they were not pursuing this ground of appeal (see [40] above), Mr Firth was not called on to expand upon his already voluminous submissions on the matter in his skeleton argument.

Mr Firth argued that the purpose of the rules was to give non-domiciled taxpayers and their advisers a clear and straightforward code to clarify what does and what does not amount to a remittance, to enable them to make an informed choice as to whether to remit or not. Ordinary English words – “property”, “money” and “service” had been used without embellishment. Parliament had specifically not chosen to use wider wording encompassing, say, any “benefit” or “value” provided (as had been done in other tax legislation). Furthermore, what the legislation told us about the services it contemplated was that they were something which was “provided” in a particular geographical location (in this case, the UK), and for the benefit of a particular individual (or another “relevant person”).

Mere payment of an existing liability could not sensibly be regarded as amounting to providing a service, and that was effectively what the Taxpayers had done here, albeit by a different legal mechanism. If anything, it would be more appropriate to regard the Taxpayers as having provided a service to the Li & Fung group, by agreeing to settle their liabilities in a different way to suit Li & Fung’s accounting requirements.

In Mr Firth’s submission, the ordinary meaning of the word “service” was “a beneficial activity of a commercial character which is normally provided for remuneration”. Authority for this proposition was sparse. He referred to R (Gaskin) v Richmond upon Thames LBC [2018] EWHC 1996 (Admin), where the High Court considered the meaning of the word “service” in the context of the EU Services Directive and related legislation. He submitted, on the basis of R v Preddy [1996] AC 815 at 840, that “the making of a loan upon interest” would not normally be considered a service, nor would “an obligation to provide a room if the room is required” (based upon Blue Lagoon Beach Hotel & Co Ltd v Assessment Review Committee [2023] UKPC 24).

On any view, Mr Firth submitted, Centennial agreeing to the release of liabilities upon their being indirectly settled by a different route was far removed from any normal meaning of the word “service”. He submitted that the FTT had had no basis for finding that, in providing something of value to IR and the Taxpayers, Centennial had provided them with “some form of financial service”, analogous to the provision of a third party guarantee or credit protection insurance: the FTT had already found that the economic effect of the transactions was the same as paying the Indemnity liability, that the restructuring was at the request of Li & Fung, and that it was not the Taxpayers’ “preferred route”. In short, how could it properly be said that agreeing to do something that you would prefer not to do, in order to confer a benefit on a third party, at the request of the third party, amounted to the third party providing you with a service?

Mr Firth also argued that the analogous services to which the FTT had referred were in fact not analogous at all. A third party guarantor (for example a bank) or a credit insurer would charge a fee for its guarantee or insurance, a feature which was notably absent in the present case – Centennial had charged no fee for the “service” it had supposedly supplied beyond the payment of a liability which the Taxpayers were already subject to.

Furthermore, in his submission, HMRC must be taken to be arguing that for the purposes of subsection 809L(3) and satisfaction of Condition B, the putative remittance was any consideration supposedly given by the Taxpayers for the service (as the service itself, which HMRC were saying was provided by Centennial, clearly could not constitute the remittance on the basis that it derived wholly or in part, directly or indirectly, from the gain). As the Taxpayers had done nothing but simply settle their pre-existing liability by a different means at the request of Li & Fung, they had not given any consideration at all.

Finally, Mr Firth submitted that even if a service was found to have been provided by Centennial, for which the Taxpayers provided consideration which was derived from the gain, there was nothing to indicate that the service was provided in any particular geographical location. There was nothing in the legislation which required a geographical location to be identified for the provision of every service; the sole preoccupation of the remittance rules was whether the service was provided in the UK, and where the notional service was as abstract as that being advanced in the present case, there was every reason to regard it as having no geographical point of provision.

First, whilst we accept that the codification of the remittance rules in Finance Act 2008 was clearly intended to address what HMRC regarded as “loopholes, flaws and anomalies” in the pre-existing rules, we do not accept the proposition that the new rules should be considered to be “anti-avoidance” rules and therefore interpreted more broadly than might otherwise be the case. We agree that the provisions are to be interpreted in accordance with the normal rules of construction. These require us simply to enquire whether the statutory provisions, construed purposively, were intended to apply to these transactions, viewed realistically (see Lord Reed in UBS at [66], quoting Ribeiro PJ in Collector of Stamp Revenue v Arrowtown Assets Ltd (2003) 6 ITLR 454).

Mr Stone invited us, in the light of the explanatory notes accompanying the introduction of the legislation, to find that a purpose of the provisions is to tax offshore income and gains which are not “genuinely” kept offshore and which are “in effect” remitted to the UK “in such a manner that the individual has the use or enjoyment of them in the UK”, examining the reality of the situation rather than its form. The difficulty with this argument (apart from the fact that it seeks to add a non-statutory gloss to the words chosen by Parliament) is that it is somewhat circular, begging as it does the question of what amounts to the use or enjoyment of offshore gains in the UK. This difficulty is further compounded by the fact that the legislation does specifically import the concept of “enjoyment” of goods or a service in subsections 809L(4) and (5) for the purposes of Conditions C and D but makes no such provision in relation to Condition A.

For reasons that will become apparent, we consider the Respondents’ notice before addressing the other outstanding grounds of appeal.

We note that there are two elements to the “service” which is said by HMRC to have been provided by Centennial in the UK: its undertaking to procure that VL would not pursue the debt owed to it by IR, and its waiver of its rights against the taxpayers under the Indemnity in consequence of the payment made by SKS to Miles.

The first issue for us to decide is whether either element amounted to a “service… provided in the United Kingdom to or for the benefit of a relevant person” for the purposes of subsection 809L(2)(b). If we find that either of them did, then the second issue that arises is for us to decide whether Condition B in subsection 809L(3) is satisfied by any of the various means there set out.

So far as the first issue is concerned, it is agreed that each of the Taxpayers and IR was a “relevant person”. The remaining questions therefore are:

Addressing the first point, the FTT’s analysis was that it was “clear that Centennial has provided something of value to IR and the Appellants”, even though the overall economic effect of the transactions was the same as if the Indemnity had been paid by the Taxpayers. They then said this:

We do not consider that any general definition of “service” can be derived from the Richmond on Thames decision. That case was concerned with whether the specific definition of “service” contained in the EU Services Directive applied to the activities of an individual who managed a house in multiple occupation which he owned. The definition in question referred to service as meaning “any self-employed economic activity, normally provided for remuneration, as referred to in article 50 of the Treaty”; and article 50 itself referred to services as being “normally provided for remuneration” and including “(a) activities of an industrial character; (b) activities of a commercial character; (c) activities of craftsmen; (d) activities of the professions.” Whilst the Court considered that “managing rented accommodation as a self-employed person and in return for the payment of rent” would, “in general terms, be regarded as providing a service”, that was as far as it went in commenting on any general meaning for the word “service”.

We note that the concept of what constitutes a service is sufficiently uncertain for the VAT legislation to provide that for VAT purposes “anything which is not a supply of goods but is done for a consideration… is a supply of services” (see section 5(2)(b) Value Added Tax Act 1994). Neither party urged this approach on us, and they were clearly right not to do so. The decision by the Privy Council in Blue Lagoon v ARC to which we were referred therefore does not assist, as it was decided by reference to the equivalent provision in Mauritius VAT legislation, and a passing comment by Lady Rose that “the obligation undertaken by Blue Lagoon [to keep rooms available for guests sent by the tour operators] might not comfortably be described as a ‘service’” does not add anything to the present discussion.

Similarly, the comment by Lord Goff in R v Preddy that “it is not altogether natural to think of the simple making of a loan upon interest as itself constituting a service” does not cast any light on the matter as it was made in passing when considering the scope of a particular offence under the Theft Act 1978 which relied on an extended definition of “obtaining of services”.

In his original skeleton argument before the FTT, Mr Stone argued that the OED definition of “service” as including “assistance or benefit provided to someone by a person or thing” and “an act of helping or benefiting another” was clearly broad enough to cover the transactions in this case, and there was no reason, in light of the purpose of the remittance rules, to narrow it down at all, for example to include a requirement that “service” should be commercial in character or require remuneration. We do not consider this approach pays adequate regard to the normal rules of interpretation – see [60] above.

We therefore need to address the meaning of “service” in section 809L as a matter of general construction, following the usual approach referred to above.

Like many words, “service” takes much of its meaning from the context in which it is used. In the context of the remittance code, which focuses on the enjoyment in the UK of benefits derived from foreign income and gains, we consider it is intended to refer to services in the ordinary sense of the word which are normally provided on a commercial basis in exchange for payment. Services of hotels, restaurants, cleaners, garage mechanics and the like would be classic examples, where physical services are performed at a particular location. Services of a less tangible nature, such as the provision of professional advice or banking or financial services, would in our view also be services for this purpose (though the question of whether such services were “provided in the United Kingdom” would of course also need to be considered separately for the purposes of Condition A).

In the present case, the FTT saw the transactions as “some sort of financial service, in the same way as someone providing a third-party guarantee or credit protection insurance is providing a service”. It also considered that “an agreement not to take an action or pursue a claim” (as in the present case) could be a service.

With respect, we disagree. We consider that the benefits conferred on the Taxpayers and IR as a result of the transactions did not amount to anything that would fall within the normal understanding of the word “service” and therefore it could not properly be said that any service was provided to either the Taxpayers or IR by virtue of them. If Parliament had intended that the conferring of any kind of benefit with a monetary value to the recipient should potentially give rise to a remittance, then it could easily have provided for that with appropriate wording, but it did not do so.

Furthermore, if a “service” is considered to have been provided in this case, the point referred to at [65(2)] above must then be considered. Mr Stone sought to persuade us that the place of provision of the service was in the UK for the reasons given by the FTT, essentially:

We discount the “governing law” point in each case as insignificant. Parties may adopt the law of England and Wales as the governing law in many situations where the connection with the UK is comparatively slight.

So far as the other stated reasons are concerned, it must be remembered that the statute requires a consideration of whether the service is “provided” in the UK, not of where its recipient or subject matter is to be found. Clearly, where the services are of a type which falls to be physically performed at a particular location there is little difficulty with this point – the location of performance will be the place where the service is “provided”. But where that feature is absent, what can then be said about the location where the services are “provided”?

First, as Mr Firth pointed out, the only statutory enquiry required is whether the service is “provided in the United Kingdom”. This leaves open the possibility that it might be “provided” in another jurisdiction, but also that there may be no geographical location that can properly be regarded as its place of provision.

The specific nature of the service may indicate such a location, for example telecommunication services supplied to an individual in a particular country to enable them to communicate with others in that country or elsewhere are physically enjoyed by the individual in the country in question, wherever in the world their provider may be. But if an individual in the UK seeks professional advice from, say, a lawyer in an overseas jurisdiction, can it be said that the service is “provided in the United Kingdom” to that person if the advisor transmits their advice from overseas? Since the statutory wording focuses on the provision of the service (and therefore its provider) rather than its receipt (and therefore its recipient), we consider the better view is that in such cases if there is any geographical location in which the service is “provided”, it is the location of the overseas adviser rather than that of the recipient in the UK.

The present case, if there was indeed a “service” being provided to (or for the benefit of) the Taxpayers and IR, is in our view analogous. It is common ground that any such “service” was provided by Centennial (a Luxembourg company) and accordingly if that “service” were being provided in any geographical location, it would in our view be Luxembourg rather than the UK. For this reason, even if we considered there to have been a “service” in this case which was provided to or for the benefit of the Taxpayers and/or IR, we would not consider that service to have been “provided in the United Kingdom”.

We would also add that the very artificiality of the analysis required in such cases into the place of provision of the putative “services” further militates against the suggestion that transactions of this type were intended to be included within the meaning of “services” at all.

Having reached the above conclusion, and in light of HMRC’s withdrawal of Ground 1 (the “property analysis”) (see [40] above), their “Ground 3” (relevant debt) falls away, since HMRC no longer argue that there was any property falling within subsection 809L(2)(a) to which the “relevant debt” provisions could apply and we have found that there was no “service” falling within subsection 809L(2)(b) to which they could apply.

However, in case we are wrong, we express our views on Ground 3 before going on to consider Grounds 2 and 4.

If we are wrong in finding that there was no “service” provided to IR and/or the Taxpayers in the United Kingdom, then the question arises as to whether Condition B is satisfied by reference to subsections 809L(3) & (7) (the “relevant debt” provisions).

The classic application of the relevant debt provisions is where a taxpayer incurs debt in acquiring property or services satisfying Condition A in subsection 809L(2) and then satisfies that debt overseas using money which is, or is derived from, foreign income or gains.

In the present case, HMRC argue that the “relevant debt” in question is the pre-existing debt owed by IR to VL. It is said that by injecting the €6.783 million into SKS and procuring its payment on to Miles, the Taxpayers have used either their foreign gains or money derived from those gains indirectly “in respect of” the debt owed by IR to Visage, because the payment that they made was ultimately used to settle that debt.

This argument is more than a development of the “classic” situation; it effectively stands it on its head. Subsection 809L(7) states that a “relevant debt” means “a debt that relates (wholly or in part, and directly or indirectly)” to either some property or service which is found to satisfy Condition A. How can it fairly be said that the debt owed by IR to VL “relates (wholly or in part, and directly or indirectly) to” either (i) the “money or other property” which HMRC say was being “brought to, or received or used in the United Kingdom” or (ii) the “service” which they say was being “provided in the United Kingdom”? We agree with Mr Firth on this. The only sensible way to view matters is on the basis that the IR debt, as a pre-existing liability, cannot in any way be said to relate (wholly or in part, and directly or indirectly) to the payment which the Taxpayers subsequently agreed to make in order to secure their release under the Indemnity and the right to require VGL to prevent VL from enforcing its debt. Mr Firth gave the example of a contract for the sale of a house – where the contract clearly “relates” to the house but it would be an abuse of language to say that the house “relates” to the contract, however indirectly. Whilst this may not be an exact parallel, it illustrates the point clearly enough.

Thus even if we are wrong on the “service analysis”, we consider the “relevant debt” provisions would have no application to the facts of this case.

The FTT held that as a matter of general principle, a “chargeable gain” was not the equivalent of the sale proceeds for a particular transaction, but was the “result of an arithmetical application of the chargeable gains rules.” In short, it considered that “the sale proceeds from a share sale are not the same thing as the chargeable gain which has been generated.” It pointed out that the legislation recognised that sale proceeds could alter over time, with sections 48 and 49 TCGA making explicit provision for later retrospective adjustments to be made, both upward and downward, in the amount of any chargeable gain to reflect events such as non-payment of deferred consideration or enforcement of certain contingent liabilities assumed as a term of the sale. Since the remittance provisions in section 809L had as their starting point the chargeable gains calculated in accordance with the provisions of the TCGA, any such adjustments ought to be reflected in the amount of any offshore chargeable gain which was considered to be subject to the remittance rules. They also said (and it was common ground before both the FTT and us) that if the Taxpayers had simply made payment under the Indemnity, the effect of that payment would have been to reduce the amount of the chargeable gain and, in that situation, there would have been no question of their payment being treated as a remittance.

Thus far, we agree. However, the FTT went on to consider whether the manner in which the Taxpayers had actually made payment (securing the waiver of their liabilities under the Indemnity rather than directly settling that liability) affected this view, and concluded that it did not.

On this point, we consider the FTT erred. We accept Mr Stone’s argument (see [34] above) that the transactions that were entered into created rights and obligations which were distinct from the rights and liabilities under the original sale of shares and disposal of loan notes. The whole purpose of the structure adopted was to avoid there being a claim under the Indemnity, and that was its actual effect. We do not consider it is appropriate to regard this, as the FTT did, as simply a change of “form” on the basis that the ultimate source of the payment made by the Taxpayers remained the profit generated through the redemption of loan notes.

We therefore consider that if Condition A had been satisfied by virtue of either the “property analysis” or the “service analysis”, then Condition B would have been satisfied by virtue of subsection 809L(3)(b).

As summarised above, Mr Stone’s argument was essentially that Condition A was satisfied because the €6.783 million was money that was “used in the United Kingdom” because of the effect its use had on the liabilities of the Taxpayers and IR in the UK; and Condition B was satisfied by virtue of subsection 809L(3)(a) because the money so used was in part the offshore chargeable gains of the Taxpayers, rather than simply being derived from those gains.

We note that this analysis, whilst advanced as an alternative to the “relevant debt” analysis (which depends on money being used outside the UK), throws up a very obvious point: Parliament clearly had in mind both the use of money inside and outside the UK, and catered separately for the two situations.

Turning to the language of the statute, we see two difficulties with Mr Stone’s argument. First, his submission that the money was “used in the United Kingdom” even though it never came into the jurisdiction would require quite an extension to the normal concept of “use” of money in any particular place. Whilst some elasticity might be justified if it were needed to fill some obvious loophole which might otherwise appear, given the existence of the “relevant debt” provisions, we see no such loophole.

Even if we were wrong on the first point, the second difficulty faced by Mr Stone is his argument that the money was in part the chargeable gains previously made by the Taxpayers. As the FTT observed, “chargeable gain” is the result of an arithmetical application of the chargeable gain rules, deducting allowable expenditure from the capital sum derived from the disposal. It is not the same as the sale proceeds. Mr Stone invites us to gloss over this point by arguing that subsection 809L(3)(a) can only bear its intended meaning if we do so, since Parliament clearly meant something by including the words “or chargeable gains”, and the most obvious meaning is to refer to the proceeds which derive from the chargeable gains in question.

We decline this invitation. We cannot envisage a situation in which money (being, as both sides agreed, included for this purpose within “property”) “is (wholly or in part)” the chargeable gains under consideration, and to that extent we cannot see how subsection 809L(3)(a) can ever apply in relation to chargeable gains; however it clearly has potential application in respect of overseas income (where sums of money received overseas by a taxpayer can themselves be pure income profit), and subsection 809L(3)(b) caters specifically for the situation where money is derived from a chargeable gain – which is clearly the situation here. Thus whilst the statutory provisions contain some wording for which we can see no practical purpose, this does not in practice cause a problem because any perceived difficulty arising as a result is in fact addressed elsewhere.

We therefore reject HMRC’s “money analysis”.

As indicated at [40] above, in view of Mr Stone’s withdrawal of this ground, we do not need to consider the matter further.

We consider that the FTT erred in law in accepting HMRC’s “service analysis”. We consider that no service was provided in the UK to the Taxpayers or IR by reason of the transactions under consideration (see [63] to [81] above).

If we are not correct in that view, we consider that the FTT also erred in its finding that any property or service was derived from the Taxpayers’ chargeable gains (see [89] to [92] above).

We reject HMRC’s “relevant debt” argument (see [84] to [88] above) and their “money analysis” (see [93] to [98] above).

We note that HMRC do not pursue their “property analysis” (see [40] above).

Accordingly, whilst we find that the FTT Decision contains errors of law, on a correct analysis we agree with the final result and accordingly the appeal is DISMISSED.