The taxpayer, which had been issued 10-year floating-rate notes on its sale of shares of a New Zealand subsidiary to a third party, subsequently demanded repayment of 43% of the Loan Notes. At issue was whether this qualified under s. 171A of the Taxation of Chargeable Gains Act (U.K.) as a transaction in which the taxpayer “disposes of an asset to a person who is not a member of the group.” In finding that this requirement was not satisfied, Lewison LJ stated (at paras. 50-1):
Ms Yang argued that… the relevant asset upon which to concentrate is the Loan Notes. Even after the debt was repaid the Loan Notes continued in existence, not least because the Issuer still had the obligation to cancel the Notes… . In addition the creditor's rights were transferred to the Issuer even if only for a scintilla temporis.
…I do not believe that the approach to interpretation of taxing statutes laid down by Barclays Mercantile Business Finance Ltd v Mawson [[2004] UKHL 51, [2005] 1 AC 684] with its insistence on a realistic view of the facts leaves any scope for angels, pinheads or scintillae temporis. …[I]n the real world when the debt was repaid the obligation to pay was discharged; and there were no remaining creditor's rights that could have been transferred to the Issuer. I cannot see that the world of [capital gains tax] compels any different conclusion.
…[T]he Issuer's obligation to cancel Notes which have been repaid (and to alter the relevant entries in the register) is of an administrative nature which only the Issuer can perform; the performance of which does not require or presuppose that the Issuer owns the Notes in any sense.
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