Home Information Cases Inmarsat Global Ltd v Revenue & Customs Commissioners (2019)

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Inmarsat Global Ltd v Revenue & Customs Commissioners (2019)

Summary

For the purposes of entitlement to capital allowances, the costs of launching leased satellites into orbit did not amount to the provision of machinery and plant for the purposes of the lessees trade. The Capital Allowances Act 1990 s.78(1) did not operate to deem that the satellites belonged to a company that had succeeded to the lessees business.

Facts

he tribunal was required to determine whether the first referrer company was entitled to writing-down allowances in respect of six satellites.

The International Maritime Satellite Organisation (IMSO) had entered into a series of agreements under which it commissioned the building of six satellites that were to be acquired by third parties and then leased to IMSO for launching into orbit. The third party lessors claimed capital allowances on the acquisition costs. IMSO incurred the cost of launching the satellites into orbit. The company succeeded to the business of IMSO and the lease agreements were novated to it. The company claimed that it was entitled to writing-down allowances under the Capital Allowances Act 1990 s.24 in respect of the open market value of the satellites at the date of succession. 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 company argued that under s.78(1) the satellites were treated as belonging to it as an inevitable consequence of the operation of that section, which deemed that property in use before succession took place and in use immediately after succession was treated as sold to the successor. Further, that under s.61(4) the satellites were deemed to have belonged to IMSO before succession because the launch costs were capital expenditure incurred on "the provision" of machinery or plant for the purposes of its trade, which it was "required to provide under the terms of a lease".

Held

Whether the satellites had belonged to the company by operation of s.78(1) - Given that the draftsman had assumed that the property would have belonged to the predecessor before succession, the same implicit assumption was made in respect of the successor, so that s.78(1) only applied where the property actually belonged to the successor after succession. As it was common ground that the satellites did not actually belong to the company after the succession, s.78(1) did not confer an entitlement to writing-down allowances on the company (see paras 59-60 of judgment).

Whether the launch costs had been incurred on the provision of machinery or plant under s.61(4) - Any provision of plant had to have at its heart the plant itself; simply moving someone else's plant from A to B could not amount to the "provision" of that plant, Ben-Odeco v Powlson [1978] 1 W.L.R. 1093 applied. IMSO had not incurred capital expenditure on the provision of the satellites for the purposes of its trade (paras 66-67).

Whether the company had been required to provide machinery or plant under the leases - A generalised obligation to comply with all relevant laws could not be treated as giving rise to a specific obligation to incur expenditure on launching six specific satellites. It would not be appropriate to imply an obligation into the contracts. It was not legitimate to look at the wider commercial picture and include obligations which might in practical terms have to be incurred by reason of the existence of the leases. The legislation was clear that the lessee had to be required to provide the relevant machinery or plant "under the terms of the lease" in order to fall within s.61(4) (paras 101-103).

Whether the launch obligations arose "under the terms of a lease" - There was a natural chronological flow about s.61(4) which necessarily implied that the lease had to be in existence before the capital expenditure was incurred. That was reinforced by the fact that the draftsman had felt it necessary, in s.61(8), to extend the provision so as to apply where there was an agreement for a lease rather than an immediately effective lease. In the instant case, the contract for launch of the satellites had been entered into before the leases, the leases had been entered into before the satellites had been built, and in each case the lease term was expressed to commence only on launch (para.111).

Whether the novations had determined the leases - If s.61(4) had applied, the novations of the leases would have brought about their determination, with the effect that the final section of s.61(4) would have applied to effectively transfer the benefit of the capital expenditure from the company as lessee to the various lessors (para.117).

Conclusion - As the satellites had neither belonged nor were deemed to belong to the company after the succession, s.78(1) did not operate so as to confer entitlement to any allowances on it. IMSO had not been required to provide any of the satellites under the terms of any of the leases, and s.61(4) was not engaged (para.119).

Referral decided in favour of HMRC

FTT (Tax)
Judge Kevin Poole
Judgment date
30 August 2019
References
[2019] 8 WLUK 209; LTL 9/9/2019