Payments constitute income

The taxpayer company First Nationwide was a wholly owned subsidiary of the Nationwide Building Society.

To raise funds for the use of the building society the taxpayer company entered into a structured finance arrangement with ABN AMRO which involved various transactions including a loan of shares in a company registered in the Cayman Islands.

In its corporation tax self-assessment return the taxpayer company deducted £51 million as management expenses in relation to the payment of manufactured dividends paid to ABN AMRO.

HMRC did not allow the deduction on the basis the dividends constituted capital payments and as such were not deductible.

The taxpayer appealed to the First-tier Tribunal which allowed the appeal. The Revenue then appealed to the Upper Tribunal (Tax and Chancery Chamber) which found for the taxpayer company.

In the Court of Appeal the judges accepted the payments...