On Friday 3 November 2023, the Court of Appeal dealt a further blow to HMRC in the appeal of the Euromoney decision.  HMRC had appealed from the Upper Tribunal, which found that an anti-avoidance rule did not preclude the deferral of corporation tax on a share for share exchange where consideration received for the sale of shares consisted of new shares (including a choice of preference shares specifically for tax avoidance reasons).  The Court of Appeal dismissed HMRC’s appeal against the Upper Tribunal decision, and found that the taxpayer was entitled to the tax deferral because the exchange of shares (i) was entered into for bona fide commercial reasons, and (ii) as a whole did not have as a main purpose the avoidance of tax.

Euromoney involves similar issues to the Wilkinson decision discussed in our recent blog post (the First-tier Tribunal in Wilkinson referred to the Upper Tribunal decision in Euromoney), and the Court of Appeal’s reasons will provide additional comfort to those advising on share consideration as part of arm’s-length share sales.


Euromoney, a UK company sold class A shares in a subsidiary, Capital Data, to a company, Diamond Topco, for consideration valued at US$80.44 million.  This disposal did not benefit from the substantial shareholdings exemption, because the class A shares did not carry a right to dividends.  

The consideration was initially intended to consist of a combination of cash and ordinary shares in Diamond Topco, but in the course of negotiations, Euromoney asked to receive redeemable preference shares instead of the cash component, as well as the ordinary shares.  The change was requested in order to allow Euromoney to roll its gains into the preference shares, and then later redeem the preference shares without paying tax on the chargeable gain (as Euromoney would then hold >10% of Diamond Topco’s ordinary share capital, and be able to access the substantial shareholding exemption from corporation tax).

Previous appeals

HMRC sought to deny relief (in response to a clearance application) on the basis that the tax-free rollover (as provided by Taxation of Chargeable Gains Act 1992 s 137) was not carried out for bona fide commercial reasons, and formed part of a scheme one of the main purposes of which was the avoidance of a CGT liability.  In particular, HMRC objected to the choice of preference shares in order to obtain a later tax-free disposal (in effect upgrading the tax deferral into a tax diminution).

Euromoney later appealed to the First-tier Tribunal, which found that tax avoidance was not a main driver of the scheme or arrangements as a whole, partly on the basis that Euromoney would have proceeded with the sale even without the rollover (receiving cash rather than preference shares if necessary).  The FTT considered the relevant scheme to include the sale of shares in Capital Data and the consideration received (plus the intention to hold the preference shares for 12 months and them redeem them for cash).  While the FTT considered that avoidance of tax was a purpose of the scheme, it did not agree that it was a main purpose, and so allowed the taxpayer’s appeal.

The Upper Tribunal adopted a similar approach, taking the view that first the scheme or arrangements should be identified, and then the main purposes of that scheme or arrangements considered (so that rollover relief should not be denied where a particular step or component of a scheme had a main purpose of tax avoidance, provided that was not a main purpose of the arrangements as a whole).  The Upper Tribunal dismissed HMRC’s appeal.

Court of Appeal decision

The Court of Appeal largely agreed with the reasons of the FTT and Upper Tribunal, and found that, in applying section 137, one should first identify the scheme or arrangements of which the share exchange forms part, rather than examining each individual step.  Given the earlier findings of fact, this was sufficient for Euromoney to succeed, as the exchange of shares represented a commercial sale which would have proceeded regardless of whether the tax relief was available.  Additionally, in relation to whether the exchange is effected for bona fide commercial reasons, the Court of Appeal noted that a share exchange could be entered into for bona fide commercial reasons even if the transaction was wholly or partly tax driven.

The Court of Appeal focused closely on the language and context of s 137, which may provide some guidance on the approach to other specific anti-avoidance provisions, as discussed in relation to the Wilkinson decision.  In particular, the court emphasised that s 137 requires testing whether the exchange as a whole forms part of a scheme a main purpose of which was tax avoidance, and effectively accepts that tax avoidance may be an incidental purpose of the scheme.  This differs from the UK’s general anti-abuse rule, which can counteract any single transaction or series of transactions, so that a commercial deal could consist of many schemes and levels of schemes each of which may need to be considered.

The findings of fact at the First-tier Tribunal (based, in part, on contemporaneous records) were important, in particular that tax advisers were only involved at a late stage in the transaction and that the transaction would have proceeded for commercial reasons regardless of the tax saving.

Notwithstanding the Court of Appeal’s decision, it might still be argued that the language of section 137 (in particular “does not form part of a scheme or arrangements”) requires an examination of all schemes or arrangements of which the exchange forms part, rather than limiting the enquiry to a single overall scheme.  However, it is not yet known whether HMRC will seek leave to appeal.

The Court of Appeal decision is available online.