Upper Tribunal says no tax relief for delisting costs
The Upper Tribunal ultimately upheld a decision of the First Tier Tribunal albeit for different reasons. In this case the Upper Tribunal rejected a taxpayer’s claim that the costs of delisting / taking a company private were an allowable expense for Corporation Tax.
The case concerned a haulage and vehicle rentals business which was listed on the London Stock Exchange in 1988. The flotation was not a success for a number of reasons including poor liquidity of the shares. In mid 2000 the business was delisted and reverted back to private company status.
The Upper Tribunal examined whether the costs of the delisting from the Stock Exchange were deductible in computing the taxable profits for the year ending 31 December 2000. The key question was whether the company which incurred the delisting costs was an investment company within the statutory definition at the time at section 130, ICTA 1988. And the decision covered two related issues:
- Whether the taxpayer was an investment company and
- Whether the expenditure incurred as a result of de-listing from the stock exchange was “disbursed as expenses of management”.
In order to succeed in the appeal, the taxpayer had to succeed on both those issues.
The First Tier Tribunal had found that the company was in reality engaged in trade and concluded “that it is not an investment company within the meaning of s 130, and on that ground alone the appeal must accordingly fail”. The Upper Tribunal found that the First Tier Tribunal Judge had erred and that the taxpayer’s main activity was indeed holding investments and therefore the company was an investment company.
The Upper Tribunal therefore had to examine the second issue in substantially greater detail. The Upper Tribunal ultimately found that the expenditure was not incurred by the taxpayer in managing the business or improving the investments. Thus the costs were not deductible and the taxpayer’s appeal was therefore dismissed.