No remittances arose from indemnity transactions

The taxpayers were UK-resident non-domiciled individuals who claimed the remittance basis. They sold their shares in a company (VGL) to a Luxembourg resident company (CLS). At the time of the sale another company (IRL) indirectly owned by the taxpayers through a Jersey company (SKS) owed VGL’s subsidiary about £6m. Under the share purchase agreement the taxpayers provided an indemnity for the debt.

Soon after the sale it became clear that the debt could not be recovered. This triggered the indemnity. However because CLS’s parent company was concerned about the effect of the indemnity payment it asked the taxpayers to discharge the debt in a less straightforward way. This entailed SKS buying clothing goods from another company (M) in CLS’s group with CLS and the taxpayers entering into a side letter in which they agreed that the payment for the clothing would reduce the debt...