The UK’s First Tier Tax Tribunal has stated that the Jersey businesses incorporated to put the tax scheme into action were resident in the UK. The tribunal have decided that the decisions must have been made under the control of the UK parent company as the board meetings had no financial justification for the companies.
Although board meetings took place in Jersey, the subsidiaries of a UK parent company were under the parent’s management and control due to residence factors. A total of 3 Jersey companies were part of a tax planning strategy in which they were incorporated so that they could tackle capital losses for the group.
This particular case is in direct reference to the Development Securities property development and investment group (DSG). DSG decided to enter into the tax planning scheme due to having assets at a loss. The scheme was created by PwC in order to boost capital losses by incorporating the indexation feature. Following this, Indexation allowance is constructed to minimise a capital gain in order to counteract any effect of inflation on the business, however it does not maximise a capital loss.