Transfer of contingent debt asset to subsidiary

After the collapse of energy company Enron in 2001 the taxpayer submitted claims against it for failure to fulfil contracts. In 2006-07 the taxpayer set up a scheme under which it transferred contingent claims to a newly-incorporated and wholly-owned Jersey subsidiary. In return it received fully paid ordinary shares in the subsidiary.

It was accepted that the claims gave rise to loan relationships. The intention was that the transfer of the claims would not create any taxable credits for the taxpayer. The scheme was notified to HMRC under the disclosure of tax avoidance schemes regime.

HMRC decided the loan relationship credits should be brought into account on the dates when the claims were transferred to the subsidiary. The taxpayer appealed saying the transfer was not a sale but an assignment for shares in the subsidiary. This was dismissed by both the First-tier Tribunal and the Upper Tribunal...