Vocalspruce – English Court of Appeal broadly interprets a deeming provision

A UK sub (Vocalspruce) acquired zero coupon notes from its UK parent in consideration for its issuance of shares, and credited the discounts on the notes to its share premium account when received, with the targeted result that those discounts were tax-exempt. It unsuccessfully argued that a provision, which provided that loan transactions in which one group company replaced another were to be disregarded, only had the effect of requiring one to ignore that Vocalspruce had replaced its parent as the new owner of the discount notes, and did not require the subsequent realization of the note discounts in its hands as exempt share premium amounts to be ignored.

In rejecting this approach, Lewison LJ stated: "it is a well-known method of interpreting deeming provisions that one must treat as real the inevitable consequences flowing from the deemed state of affairs: DCC Holdings Ltd v HMRC [2010] UKSC 58, [2011] 1 WLR 44 at [38]." (See also La Survivance, East End, Derlago, Terrador.) Arguably, the narrow construction typically given by CRA to deeming provisions does not apply this well-known method.

Neal Armstrong. Summary of Vocalspruce Ltd. v. Revenue and Customs Commissioners, [2014] BTC 50, [2014] EWCA Civ 1302 (English CA) under Statutory Interpretation – Interpretation Provisions.