UBS AG – UK Supreme Court infers a Parliamentary intention to give relief for restrictive conditions affecting shares' marketability only where those conditions have a commercial purpose

Lord Reed found that a scheme to avoid income tax on bankers’ bonuses, which entailed awarding the employees redeemable shares in an offshore company which were subject to a commercially remote risk of forfeiture of all or a significant portion of their value (e.g., in the case of one bank, forfeiture of the shares if the employee was dismissed for misconduct or voluntarily resigned within the next six weeks), did not avoid immediate taxation on the value of the offshore company shares when awarded to them. He applied a variant of the Ramsay principle, which turned on whether “the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.”

In response to arguments that in the presence of rules governing "restricted shares" which were “extensive and highly detailed…it was impossible to attribute to Parliament an unexpressed intention to exclude schemes of the present kind,” he stated:

[I]t appears from the background to the legislation that the exemption…was designed to address the practical problem which had arisen of valuing a benefit which was, for business or commercial reasons, subject to a restrictive condition involving a contingency. The context was one of real-world transactions having a business or commercial purpose. There is nothing in the background to suggest that Parliament intended that [the exemption] should also apply to transactions having no connection to the real world of business, where a restrictive condition was deliberately contrived with no business or commercial purpose but solely in order to take advantage of the exemption… .

Neal Armstrong. Summaries of UBS AG v Commissioners for HMRC; DB Group Services (UK) Ltd v. Commissioners for HMRC, [2016] UKSC 13 under General Concepts – Tax Avoidance, and General Concepts – Fair Market Value – Shares.