Anti-Avoidance Principles in SDLT: Project Blue Ltd v. Revenue & Customs ([2013] UKFTT 378 (TC))

Introduction

Project Blue Limited ("PBL") appealed against the decisions of HM Revenue & Customs (HMRC) regarding the application of Stamp Duty Land Tax (SDLT) on the sale and subsequent Sharia-compliant financing of Chelsea Barracks in London. The case, adjudicated by the First-tier Tribunal (Tax) on July 5, 2013, delves into the complexities of anti-avoidance provisions under section 75A of the Finance Act 2003, examining whether PBL's transactions constituted tax avoidance and the correct application of SDLT.

Summary of the Judgment

The Tribunal upheld HMRC's position that section 75A of the Finance Act 2003 applied to PBL's transactions. PBL had acquired Chelsea Barracks from the Ministry of Defence (MoD) and financed the purchase through a sale and lease-back arrangement with Qatari Bank Masraf al Rayan ("MAR"), a financial institution specializing in Islamic finance. HMRC argued that these structured transactions were designed to minimize SDLT liability, thereby triggering the anti-avoidance provision of section 75A. The Tribunal concluded that the chargeable consideration for the notional transaction was £1.25 billion, resulting in SDLT liability of £50 million, dismissing PBL's appeal and enforcing HMRC's amended assessment.

Analysis

Precedents Cited

The judgment extensively referenced key legal precedents to interpret section 75A:

Barclays Mercantile Business Finance Ltd v Mawson (Inspector of Taxes) [2005] 1 All ER 97: Emphasizing purposive interpretation of tax statutes.
Astall v HMRC [2010] STC 137: Outlining principles for interpreting anti-avoidance legislation.
Vestey v IRC [1980] AC 1148: Affirming that HMRC cannot have discretionary powers in taxing individuals.
Pollen Estate Trustee Company Limited v HMRC [2012] STC 2443: Supporting the anti-avoidance nature of section 75A.
Page (HMIT) v Lowther [1983] STC 799: Reinforcing that anti-avoidance provisions apply irrespective of the artificiality of transactions.
R v Montila [2004] UKHL 50: Allowing statutory headings and Explanatory Notes as aids to construction.
CED v Czech Republic (DH) [2008] 47 EHRR 3: Discussing the burden of proof in discrimination cases under Article 14 of the ECHR.

Legal Reasoning

The Tribunal adopted a purposive approach, aligning with the precedents, to interpret section 75A as a broad anti-avoidance measure. Key points in the legal reasoning included:

Identification of V and P: V was identified as the MoD, and P as PBL. This identification was crucial in establishing the notional transaction subject to SDLT under section 75A.
Scheme Transactions: The sale of the freehold to MAR and the subsequent lease-back arrangement were deemed "scheme transactions" designed to minimize SDLT liability.
Chargeable Consideration: The Tribunal determined the chargeable consideration at £1.25 billion based on section 75A(5)(a), which considers the largest amount given by any party as consideration for the scheme transactions.
No Discretion for HMRC: Reinforcing the principle from Vestey, the Tribunal ruled that HMRC could not exercise discretionary power in applying section 75A; the provision applied automatically based on the transactions' structure.
Article 14 of ECHR: PBL's claim of religious discrimination under Article 14 was dismissed due to insufficient evidence proving that the financing structure was mandated by religious obligations rather than commercial advantages.

Impact

This judgment reinforces the stringent application of anti-avoidance provisions in SDLT, particularly section 75A. It underscores that financial structuring, even when compliant with religious or alternative financing principles such as Sharia, can still be scrutinized and challenged if perceived to aim at tax minimization. The decision also clarifies the burden of proof in discrimination claims, emphasizing that the onus lies with the claimant to demonstrate unlawful discrimination under Article 14 of the ECHR.

For practitioners and taxpayers, the case serves as a cautionary tale on the importance of transparency and the potential risks of complex financing arrangements in property transactions. It also highlights the judiciary's role in upholding legislative intent against attempts at tax avoidance.

Complex Concepts Simplified

Section 75A of the Finance Act 2003

Section 75A is an anti-avoidance provision aimed at preventing taxpayers from structuring transactions to reduce their SDLT liability. It applies when a property is sold and then a series of transactions (scheme transactions) are undertaken to minimize the tax payable compared to a straightforward purchase. The key elements include:

V and P: 'V' is the vendor (seller) and 'P' is the purchaser.
Scheme Transactions: Additional transactions linked to the primary sale and purchase intended to reduce SDLT.
Chargeable Consideration: The highest amount involved in the scheme transactions determines the SDLT liability.

Sharia-Compliant Financing

Sharia-compliant financing adheres to Islamic law, which prohibits interest (riba) and certain risks. In property transactions, this often involves structures like Ijara (lease) instead of conventional mortgages. While offering ethical financing aligned with Islamic principles, such structures can sometimes be engineered to benefit from tax reliefs or exemptions.

Article 14 of the European Convention on Human Rights (ECHR)

Article 14 prohibits discrimination in the enjoyment of rights and freedoms set forth in other parts of the ECHR. In this case, PBL alleged that HMRC's increased SDLT liability was indirectly discriminatory based on religious grounds, as the financing was Sharia-compliant. However, the Tribunal found insufficient evidence to support this claim.

Conclusion

The Tribunal's decision in Project Blue Ltd v. Revenue & Customs serves as a definitive interpretation of section 75A's anti-avoidance intent within SDLT legislation. By affirming that structured financing transactions aimed at reducing tax liability fall within anti-avoidance measures, the judgment reinforces HMRC's authority to challenge complex financial arrangements. Additionally, the dismissal of the Article 14 discrimination claim underscores the necessity for concrete evidence when alleging indirect discrimination in tax matters. This case exemplifies the judiciary's commitment to upholding legislative frameworks against tax avoidance, ensuring fairness and integrity in the tax system.