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Inmarsat Global Ltd v Revenue and Customs Commissioners

Summary

A successor to a business that had incurred costs of launching leased satellites was not deemed to own the satellites by operation of the Capital Allowances Act 1990 Pt II s.78(1) and therefore was not entitled to capital allowances in respect of those costs under s.24(1).

Facts

The taxpayer company appealed the First-tier Tribunal's refusal of its claim that it was entitled to capital allowances in respect of the costs of launching six satellites.

The International Maritime Satellite Organisation (IMSO) had entered into a series of contracts for the construction of six satellites which were novated to financial lessors and then leased to IMSO. The term of each lease commenced on the launch of the satellites. The cost of launching was incurred by IMSO under contracts with various parties. After all the satellites had launched, the company succeeded to the business of IMSO and the agreements relating to the satellites were novated to it. The First-tier Tribunal refused the company's claim that it was entitled to writing-down allowances under the Capital Allowances Act 1990 Pt II s.24(1) for the costs of launching the satellites. Under s.24, writing-down allowances could be claimed where capital expenditure was incurred on the provision of machinery and plant for the purposes of a person's trade, in consequence of which the machinery or plant "belonged" to him. The belonging condition in s.24 was modified by s.61(4) in relation to leases by treating a person as the owner of an asset where that person was required to provide that asset under the terms of a lease.

Held


Appeal dismissed.

Whether the satellites had belonged to the company by operation of s.78(1) - Section 78 deemed that plant and machinery in use before and after succession was treated as being "sold" to the successor. The company argued that as a consequence of that deeming, the satellites "belonged" to it for the purposes of claiming allowances under s.24. However, s.78 said nothing express about whether the successor satisfied the "belonging" requirement. Moreover, it focused on the disposal event for the predecessor, rather than the tax treatment of the successor. Although deeming property to be "sold" to a person was capable of carrying with it a deeming that the property "belonged" to that person, it was not an inevitable consequence. If Parliament had intended the deeming provision to extend as far as treating the company to be the owner of the satellites, it might have been expected to have dealt with further matters such as when the deemed belonging came to an end. Yet s.78 did not address such points, in contrast to s.61(4) and s.155(3), which did. Section 78 had no application in relation to a successor unless it became the actual owner of the relevant asset. The company's failure on that issue meant its appeal failed (see paras 49-59 of judgment).

Although not necessary to the outcome of the appeal the court considered the remaining issues.

Whether the launch costs had been incurred on the provision for the purposes of trade of machinery or plant under s.61(4) - HMRC argued that as IMSO did not own the satellites, its expenditure was not incurred on the provision of the satellites and were instead ancillary or freestanding expenditure. However, that argument involved a focus on IMSO rather than on the nature of the expenditure, contrary to the approach as set out in Ben-Odeco v Powlson [1978] 1 W.L.R. 1093, [1978] 7 WLUK 182. If the launch costs had the necessary effect when incurred by an owner of the satellites, there was no reason why, in the context of authorities on statutory predecessors to s.24, it should be deprived of that effect when incurred by someone other than an owner. It was not necessary to have a nexus between the incurring of expenditure and the plant and machinery "belonging" to that person, Inland Revenue Commissioners v Barclay Curle & Co Ltd [1969] 1 W.L.R. 675, [1969] 2 WLUK 70 applied. The term "capital expenditure on the provision for the purposes of a trade ... of machinery or plant" in s.61(4) should not be construed any differently from similar phrasing in statutory predecessors to s.24 and on interpretation of the authorities on those predecessors, the launch costs did involve expenditure on the provision of the satellites, Ben-Odeco applied (paras 74-85).

Whether the company had been required to provide machinery or plant under the leases - The leases for three satellites contained a generalised obligation to satisfy all pertinent laws which included a requirement that IMSO should operate on a sound economic and financial basis. That contractual obligation would have been breached if the satellites had not been launched. For the purposes of s.61(4) it was required to launch the satellites under the terms of the lease and that requirement was a requirement to "provide" plant and machinery rather than procure launch services (paras 86-98).

Whether the fact that IMSO incurred launch costs before the terms of the leases commenced failed to satisfy the "chronological flow" of s.61(4) - The focus of s.61(4)(a) was on whether the necessary requirement "under the terms of the lease" was present. The section did not make any express provision as to when that requirement must be honoured and the fact that IMSO incurred launch costs before the terms of the leases had commenced did not take the expenditure outside its scope (paras 99-102).
Upper Tribunal (Tax and Chancery)
Adam Johnson J; Judge Jonathan Richards
Judgment date
23 March 2021
References
[2021] UKUT 59 (TCC) [2021] 3 WLUK 382