Words and Phrases - "one of main objects"
Michael McGowan, "HMRC v Lloyds Bank Leasing (No 1) Ltd: the troublesome increase in the scope of the "sole or main object" test",  British Tax Review, No.5 2015 (Thomson Reuters (Professional) UK Limited), p. 649
Facts in Lloyds Bank case (p. 649)
[K]awasaki Kisen Kaisha (K-Line) won a tender contract to acquire and operate two ships to transport liquefied natural gas under time charters. Lloyds TSB Equipment Leasing (No. 1) Ltd (Lloyds Leasing) agreed to a novation of the purchase contracts in its favour from K-Line and subsequently granted finance leases of the two ships to companies of which K-Line was a shareholder (the Northern LNG Companies). This meant the Northern LNG Companies bore the financial risk of owning and operating the vessels but Lloyds Leasing ^retained die legal title and the right to claim capital allowances. Bareboat charters were then granted by the Northern LNG Companies to K-Euro. a UK-resident trading subsidiary of K-Line….
“One of the main objects" tests (p. 649)
The main focus of the court hearings has been the scope of the anti-avoidance rule contained in section 123(4) of the Capital Allowances Act 2001 (CAA 2001). The key question which was appealed to the CA [ EWCA Civ 1062; [2014 STC 2770] and remitted to the FTT [ UKFTT 401] was…whether the obtaining of a writing-down allowance at 25 per cent was "a main object, or one of the main objects" of the relevant ship-leasing transactions.
Melluish distinguished (pp. 650-1)
[A]ccording to the CA,…in Melluish, the relevant anti-avoidance test focused on "the sole or main benefit" of a given transaction, whereas section 123(4) CAA 2001 focuses more loosely on "the main, or one of the main objects" of the relevant transaction.
[R]imer LJ, delivering the unanimous decision of the CA, stated that even if each transaction "was entered into for a genuine commercial purpose, it may still be the case that a main object of structuring them in the way they were was to obtain the capital allowances.
[T]he CA allowed HMRC's appeal, set aside the decision of the FTT and remitted the case to the FTT, to be reheard on the facts….
Focus on intention of decision-maker (p. 651)
[A]s to whose intentions are relevant, the FTT suggested that the primary focus is on "the intentions of the person or persons who took the decision to enter into a particular transaction.'" [f,n, 13...] However, in this case, it did not in fact matter whether one looked directly at the intentions of relevant parties other than K-Line or examined them through K-Line's eyes: K-Line must have been aware that tax was a consideration for all parties.
Tax allowance shaped transactions' form (p. 651)
[A]lthough the FTT accepted that, even without allowances, "the transactions would have gone ahead in some form", [fn: 14: ...at ] it was unlikely they would have taken the form they did but for the potential availability of allowances. That sufficed to trigger section 123(4) CAA 2001.
Main v. subsidiary object (p. 653)
[A]t paragraph 50, the FTT pose the question regarding the
"identification of the dividing line between an object which, though not paramount, is a main object and an object which, even if it is rather more than the icing on the cake, is nevertheless a subsidiary rather than main object"
Departure from more favourable Brebener test re genuine commercial transaction (p. 654)
In effect, the courts have now made it difficult for taxpayers to show that tax is not "a main object/purpose" in any situation where they have taken tax advice, and elected to adopt a more rather than less tax-efficient structure for a commercial transaction. This effectively ignores Lord Upjohn's statement in IRC v Brebner that:
"... when the question of carrying out a genuine commercial transaction ... is considered, the fact that there are two ways of carrying it out—one by paying the maximum amount of tax, the other by paying no, or much less, tax—it would be quite wrong as a necessary consequence to draw the inference that in adopting the latter course one of the main objects is ... avoidance of tax. [fn 22: IRC v Brebner (1967), 43 TC 705 (HL) at 718.]
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|Tax Topics - Income Tax Act - Section 83 - Subsection 83(2.1)||structured transactions with tax reduction as one of main objects||85|