Land Securities plc sold shares in one of its group companies to a Cayman Island subsidiary of US investment bank Morgan Stanley, which then inflated the value of the shares by pumping money into the subsidiary.
The company then bought back the shares at the inflated price, claiming that the effect of an existing anti-avoidance rule was that they had made a 'loss' of £200m that could be used as a deduction against tax. The company claimed, in tribunal, that disallowing the loss would not be fair as it would be out of pocket if it sold the shares in the future. The tribunal disallowed the loss.
Commenting on the outcome of the case, Stephen Relf, tax specialist at CCH, said: 'In many respects this decision is of historical interest only as section 106 was repealed in 2006 and, following changes made by Finance Act 2011, section 30 no longer applies for the purposes of corporation tax.
'In addition, the date of disposal preceded the enactment of section 16A which would have prevented an allowable loss from arising in this case.
'That said, section 30 remains on the statute book for individuals and it is interesting that the Upper Tribunal found it just and reasonable to eliminate the loss even though this could give rise to double taxation when the shares are sold.'
However, HMRC welcomed the decision and director general for business tax, Jim Harra, said: 'This scheme was flagrant tax avoidance that provided finance to a FTSE 100 company that appeared cheap because the UK taxpayer was expected to pick up a £60m bill.
'This is HMRC's eighth consecutive success in court against tax avoidance, sending a clear message that indulging in tax avoidance is now a very high risk and expensive strategy, because HMRC will continue to challenge avoidance at every turn.'
Since 2010, HMRC has won more than 50 tax avoidance cases.
The government closed down six corporate tax loopholes in Budget 2013, protecting over £1bn in revenue and yielding over £500m in lost tax payments.
The Land Securities plc v HMRC [2013] UKUT 0124 (TCC) case was held in the Upper Tribunal 29-30 January 2013.
The decision is available HERE
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