Spc00640

Capital Gains Tax; disposal of shares;  whether sum paid to Appellant’s Church, was part of the consideration for the shares; Taxation of Chargeable Gains Act 1992 sections 1, 15, 16, 17, 18, 37, 38

THE SPECIAL COMMISSIONERS

	CRUSADER	Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

		

				Special Commissioner:  J GORDON REID QC, F.C.I.Arb

Sitting in private in Edinburgh on 9 May 2007

Richard Vallat, barrister, for the Appellant 

Brendan Hone, HM Inspector of Taxes, of the Appeals Unit, for the Respondents

© NOT FOR PUBLICATION

DECISION

Introduction

1.	The Appellant appeals against a Notice of Assessment dated 15/7/05 for the year 1999/2000 in the sum of £80,000.  The sum relates to assessed capital gains of £200,000, charged at 40%, on the sale of the Appellant’s shares           (“Shares”) in a company named G Limited.  The issue is whether that sum of £200,000 which was paid by a company named C Limited not to the Appellant but to the Fellowship, a recognised charity and a church of which the Appellant was a member, falls to be treated as part of the consideration for the disposal of the Shares.

2.	A Hearing took place at Edinburgh on 9/5/07.  The Appellant was represented by Richard Vallat, barrister, Pump Court Tax Chambers, London, on the instructions of Messrs Campbell Dallas, chartered accountants, Perth. The Respondents (“HMRC”) were represented by Brendan Hone, HM Inspector of Taxes, of the Appeals Unit, Glasgow.  

Procedural Matters

3.	Both parties prepared similar bundles of documents.  However, by agreement, only the HMRC bundle was used at the Hearing with the addition of several documents lodged at the Hearing on behalf of the Appellant.  There was no dispute as to the authenticity, and where appropriate the transmission and receipt of any of the documents produced.  Mr Vallat also produced on the morning of the Hearing a detailed Skeleton argument, and a copy of an authority upon which he intended to rely.

4.	At the outset of the Hearing, Mr Hone requested that the Hearing be adjourned to another date.  His reasons were, that the Appellant’s accountants had not informed him in advance that they were instructing counsel, contrary to normal practice; had they done so, Mr Hone would have consulted HMRC’s solicitors office in Edinburgh and discussed the case; the Appellant appeared to be relying on an authority notice of which had not been given in advance contrary to paragraph 3 of earlier Directions in this appeal dated 25/1/07, which required 14 days notice to be given; in addition, it was apparent from the skeleton argument that one line of argument, which had occupied much correspondence and on which Mr Hone had spent much time in his preparations (the argument that HMRC were barred from assessing the Appellant at all because a previous HMRC enquiry had concluded that the C Limited’s donation was properly treated as a Gift Aid payment and therefore gratuitous) was no longer being insisted in.

5.	Mr Hone also complained that no witness list had been intimated in advance, again contrary to the earlier Directions, although he accepted that he anticipated that he might have to cross examine the Appellant and had come prepared to do so.  Ultimately, however, his main complaint was that he did not have time to read the case produced or consult HMRC’s solicitors office about it.

6.	Mr Vallat apologised for the absence of the witness list and offered to withdraw the reference to the case he had brought.  He drew my attention to HMRC’s note of a meeting with the Appellant and his advisers dated 25/4/06 [R/59 at 60] which noted that if the case came to a hearing before the Special Commissioners the Appellant would instruct counsel.

7.	I considered there was merit in Mr Hone’s complaints; he is an experienced tax inspector but is not a qualified solicitor; there seemed to me to be a question of inequality of arms as a result of the failure by the Appellant’s advisers to intimate that they were instructing counsel.  I do not regard what appears to have been said at a meeting over a year ago and thus long before this Hearing was even fixed, to be sufficient intimation.  Once the Hearing was fixed the Appellant’s accountants, having instructed counsel about a month before the Hearing, should have so informed HMRC.  Whether their conduct was a deliberate tactic or mere lack of courtesy does not matter.

8.	Mr Hone’s other complaints seemed less weighty.  In the event, I adjourned the Hearing briefly to enable parties to discuss matters.  Following an adjournment, Mr Hone agreed to proceed and thus did not insist in his application for a postponement of the Hearing.  He was satisfied, correctly in my view, that the case produced (Spectros International plc v Madden 1997 STC 114) dealt with matters of principle which were not in dispute.  He was prepared to cross examine the Appellant and deal with the matters raised in the Skeleton Argument.

Facts

9.	In the course of the short adjournment referred to above, parties also agreed a Statement Facts, which is in the following terms:-

“1. This appeal concerns the sale of a company called G Limited to a company called S Limited which was in turn owned by C Limited in October 1999.

  2. Prior to the transaction involved in this appeal, the Appellant (“Mr Crusader”), Mrs Crusader and a Mr Y owned between them the entire issued share capital (consisting of 100,000 ordinary shares) of G Limited.  The shareholdings were:

		(a)	Crusader		29,412 ordinary shares
		(b)	Mrs Crusader		29,412 ordinary shares
		(c)	Y			41,176 ordinary shares

3.  Section 703 and section 137 clearances were sought (in August 1999) and obtained (in September 1999) for a sale of the shares in G Limited for consideration consisting of shares in S Limited together with loan notes and cash.  In all the consideration was at that time expected to be £3.7 million.

4. 	On 8 October 1999:

(a)	Crusader settled 16,905 shares on the Crusader 1 1999 IIP Trust. This transfer took place with the benefit of holdover 	relief.
(b)	Crusader gave 2,353 shares to Y.
(c)	Mrs Crusader gave 6,112 shares to Crusader.
(d)	Mrs Crusader settled 23,300 shares on the Crusader 2 1999 IIP Trust. This transfer took place with the benefit of holdover 	relief.

5.	At start of business on 13 October 1999, therefore, the shareholdings in G Limited were:

(a)	Crusader				16,266 shares
(b)	The Crusader 1 1999 IIP Trust	16,905 shares
(c)	The Crusader 2 IIP Trust		23,300 shares
(d)	Y					43,529

6.  On 13 October 1999 the G Limited shareholders disposed of their shares in G Limited to S Limited in return for an issue of S Limited shares (worth £1.585m), cash (of £415,000) and loan notes (worth £1,500,000).  The total value of the transaction was £3.5m.   

6A.	The consideration actually paid for the shares was £3.5m.  The market   value of each share at the time was £35.  If the shares had not been passed to Y, he stood to lose £82,355.

7.   At about the same time, C Limited made a payment of £200,000 to the Fellowship, a recognised charity and a church of which Crusader was a member.  C Limited claimed Gift Aid relief on this payment and its claim which was accepted by the Revenue after enquiry.

8. 	After the share exchange, the shareholdings in S were approximately:

(a)	C Limited 		70%
(b)	Crusader			  6%
(c)	Crusader 1 IIP Trust	  7%
(d)	Y				 10%
(e)	Others			  7%

	Neither Mrs Crusader nor her trust was a shareholder in S Limited.”

 10.	The Appellant gave evidence; by agreement he read a written statement which he amplified.  I find the following additional facts established:-

 9.  In 1987 the Appellant was employed by Z Limited.  Its business was the rental of test and measurement equipment to the oil, fishing and related industries.  Subsequently, he formed part of a management buy out team; SN Limited was the vehicle for the buy out and it was established in about 1990.  A few years later, the opportunity arose to consolidate a number of companies within the marine survey supply industry.  S Limited was incorporated as a vehicle to acquire for a larger enterprise, C Limited, a number of such companies operating in different parts of the oil industry world.  Four other companies were involved.  The detail is not relevant.  KPMG were advising C Limited and G Limited.  C Limited is a substantial international enterprise having a value of at least in the order of about £400m.

10. In about May 1999, the Appellant was in the USA in connection with an Offshore Technology Conference.  He met the chairman of C Limited, A and his son B.  They discussed the proposed acquisitions generally but did not discuss figures.  Another employee of C Limited, D, had been appointed as C Limited’s  	representative in all negotiations.  The Appellant was to be the CEO of the new company (S Limited).

11. The Appellant had known B for a number of years.  They had a common interest in their strong Christian beliefs.  They had worked together on a finance committee .  B and the Appellant had met on numerous occasions.

12. In about the middle of June 1999, another meeting took place in the USA.  The Appellant, KPMG and several others discussed the pricing of the various companies being acquired.  A view was expressed that SN Limited (now known as G Limited) was overvalued at £3.7m in comparison with some of the other companies being acquired.  It was proposed by the Appellant that G Limited reduce its price to £3.5m.  This was eventually confirmed in August 1999 following the completion of due diligence.  Completion of the transaction in relation to G Limited took place on 13/10/99.

13. Y, mentioned above, was the sales director of G Limited.  When he became aware that the price had been reduced from £3.7m to £3.5m he complained to the Appellant.  To compensate him the Appellant gave him 2353 shares as noted in paragraph 4(b) above.  This represented the value of the difference to Y of an overall sale at £3.7m on the one hand and £3.5m on the other hand.  

14. In a file note dated 24/6/99 [R/C/21] prepared on behalf of C Limited, (and submitted on their behalf to HMRC by KPMG by letter dated 25/11/05 [R/C/19]), Draft Heads of Agreement with SN Limited are identified showing that the price was to be £3.7m + £0.2m i.e. £3.9m.  The document then shows how the sum of £3.9m is made up and included in the addition of various sums making up £3.9m in total is “Gift Aid £200,000”

15. During informal meetings relating to the corporate acquisitions, the Appellant and C Limited discussed the Church with which the Appellant was involved.  The Church was based in temporary accommodation which the local planning authority was reluctant to allow to be extended. B  through C Limited offered to make a gift of the sum of £200,000 towards the cost of renovating a farm building leased from a Trust.  As a consequence of that offer, Architects were instructed to design and obtain planning permission for the renovation work. Planning permission was obtained at some point in the summer of 1999; the donation was made on or 	about 15th October 1999, whereupon building work began and was completed in the Spring of 2000.

16. By letter dated 13/8/99 to HMRC [R/B/21], which was a clearance application under section 138 of the 1992 Act, KPMG on behalf of inter alios, the 	Appellant, stated that

“….The proposed consideration for the disposal of G Limited is estimated to be £3.7m…… We would note that the consideration will be divided in different proportions amongst the selling shareholders”

We understand that C Limited (which will be the major shareholder of S Limited) is to make a gift of £200,000 to Crusader’s church.  In recognition of this it has been agreed that Crusader will gift an equivalent number of shares (currently estimated as 2226 shares) to Y prior to the sale to S Limited of the G Limited shares.

17.  The letter proceeded to note that once the transactions had been completed S Limited would own 100% of G Limited and Crusader and Y would be employed by S Limited.  S Limited was also involved in acquiring other companies.

18.  By letter to Y dated 14/9/99 [R/C/12], KPMG stated inter alia:-

“Recalculation of figures for proceeds of £3.5m
The reduction in proceeds has affected the consideration you are to receive.  Because the total sum has been reduced the gift to Crusader’s charity is proportionately greater in relation to the total consideration.  This means that Crusader needs to transfer more G Limited shares to you to compensate.  It is a relatively small increase from 2,226 to 2353.

We have written to Solicitors to advise them of the changes and ask them to amend the share transfer documents which will be finalised prior to completion….”

 19. On the same date KPMG wrote in substantially the same terms to the Appellant and Mrs Crusader [RC/13A].

20. The share purchase transaction settled on or about 13/10/99.  The donation of £200,000 was paid about two days later.  The donor was to remain anonymous [R/C/27-8; letters undated] 

21. By Fax dated 6/10/99 to Solicitors (C Limited’s solicitors) [R/C/23] KPMG notes that the group accountants of C Limited had to disclose in the Directors’ Report the amount of the 	aggregate of all group donations in the year, and that for 1998 that sum was £17,000.

22. By Fax dated 30/11/99, D of C Limited sent the Appellant a Gift Aid Certificate in relation to the donation of £200,000 [R/C/25-6].  The date of payment is stated to have been 13/10/99.

23. C Limited treated the donation as a charge on income.  HMRC accepted this treatment after an enquiry [see the extracted correspondence at R/D].  

24.  A section 19A notice was given on or about 19/4/02 [R/B/3].  It related to the G Limited shares but was sent to the Appellant in his capacity as Trustee of the Crusader 1999 IIP Trust.  By letter dated 16/1/03 [R/B/8] to the Appellant’s then accountants, M & Co, HMRC intimated that they regarded the payment of £200,000 as part of the consideration for the Appellant’s shares.  The response was that KPMG were dealing with the matter and advice was awaited; it was also pointed out that clearance letters had been obtained in relation to the sale of G Limited [R/B/10].  This led to a dispute and much correspondence as to whether HMRC were barred from assessing the Appellant at all.

25. By letter to M & Co dated 26/11/03 [R/B/31], HMRC expressed the view that 

“if the gift of £200,000 had not been made Crusader would not have gifted the shares.  Consequently the amount paid by C Limited is assessable on your client as it was made to facilitate the overall transaction.”

26. The response from M & Co on 13 January 2004, after consulting KPMG was that C Limited was not legally obliged to make the payment of £200,000 [R/B/34].  There was 

“an understanding that such a payment might be made….However, it did not have to be made and it cannot be confirmed as suggested by you that if the gift had not been made Crusader would not have gifted the shares……….there was no contractual nor legal obligation thereafter for Crusader to transfer those shares to Y.”

27. By letter dated 11/3/05 to M & Co [R/B/30], HMRC, having made previous requests for documentation, requested the following:-

1	Copies of all correspondence between [the Appellant] (or his agent or his solicitor) and Y (or his agent, or his solicitor) concerning the proposed disposal (“gift”) of 2353 shares in G Limited on 8/10/99.

2	The agreement between [the appellant] and Y for the disposal (“gift”) of shares.

3	Minutes of all the Board meetings of C Limited, at which the proposal to acquire shares in G Limited was discussed.

4	Copies of all correspondence between all agents acting for C Limited and [the Appellant] (or his agent, or his solicitor) and/or Y (or his agent or his solicitor) relating to the proposed acquisition of S Limited/G Limited.

5	Minutes of any relevant Board meetings of G Limited

28. By letter dated 6/7/05 to Andrew Donaldson, HM Inspector of Taxes [R/C/3] the Appellant described the background to the church’s renovation project.  He then described the relationship between the payment of the sum of £200,000 as follows:-

“The deal which I had been seeking to negotiate with C Limited also involved other overseas companies (see below) and we had come to a sticking point over the value of our company.  One of the overseas companies thought that our company was overvalued by £200,000 as compared with his.

As a way of overcoming this obstacle C Limited offered to help with the construction costs of the church building.  Both A (Chairman) and B (Managing Director) were very sympathetic to the church’s aims.  (I had first come into contact with B when we served together on a committee.)

C Limited wanted their donation to be anonymous.  A Bank Draft was delivered from their solicitors and they completed all forms re Gift Aid.  To this day no one in Fellowship knows where the donation came from.  I believe that the treasurer may have written a “To whom it may concern” thank you letter, but I have no copy of this document, indeed I do not know if such a letter was actually written.

… He (sc Y) was unhappy that I “appeared” to be benefiting from C Limited by their gesture of donating to the church.  Unless he received compensation, he was unwilling to complete the deal with C Limited.  With hindsight I wish I had merely negotiated to maintain the sale price of £3,700,000 rather than £3,500,000 and made the Gift Aid of £200,000 myself.  However, it seemed simpler at that point to grant him compensation by transferring some of my shareholding. We were in the middle of negotiations not only with C Limited, but I was instrumental in also trying to complete three other deals which would have created a global network of companies for C Limited.  I was in negotiations with an American, a Singaporean, and UAE company.  The American deal was completed shortly after the G Limited deal and the other two companies never did complete, we chose rather to open our own offices in these locations”

29. A Notice of Assessment for the Year 1999/00 in the sum of £80,000 was issued on or about 15/7/05 [R/E] based on estimated capital gains of £200,000 charged at 40%.

30. On or about 25/8/05 Y was served with a Notice given under section 20(3) of the Taxes Management Act 1970.  He was required to produce correspondence and documents relating to the gift of the G Limited shares to him by the Appellant.

31. By letter dated 16/9/05 to HMRC [R/C/11], Y stated inter alia that he argued at the time that the donation of £200,000 was part of the consideration for G Limited.  Y was not, however, present during any of the negotiations or the discussions the Appellant had with C Limited about the donation.

32. In their letter dated 16/2/06 to M & Co [R/B/56], HMRC summarised their position as follows:-

“The 2,353 shares transferred to Y, at the agreed consideration per share correspond to how much Y would lose out.

Prior to Crusader making him a gift of 2,353 shares, Y held 41.176% of the issued share capital in G Limited.  The agreed consideration per share for G Limited shares was £35.00.  If Crusader had made an arrangement whereby £200,000 of consideration was put to another purpose it would apparently reduce the amount payable to the shareholders of G Limited.  Y would lose 41.176% of £200,000 i.e. £82,352.  At the agreed payment price per share of £35.00 that amount, £82,352, is equivalent to 2353 (2352.91) shares in G Limited.  That happens to be the number of shares gifted to Y by Crusader.

That Y had to be compensated because C Limited directed £200,000 to the Fellowship in my view is indicative that the payment of £200,000 is part of the consideration for disposal of shares in G Limited/S Limited.”

33. The letter proceeds to refer to a document made available by the agents of C Limited described as Heads of Agreement.

34. In an HMRC file note of a telephone conversation on 3/4/06 [R/B/58] between Mr Donaldson, HM Inspector of Taxes, and M & Co, it is recorded that 

“M & Co volunteered that there may be some information that had not been brought out in correspondence.  He explained that at the same time as buying Crusader’s company C Limited had been buying an American Company which did the same type of work.  The owner of the American company had been aggrieved that Crusader’s company had been valued higher.  If the price for Crusader’s company had not been reduced the deal would not have taken place.  However, Crusader and the chairman of C Limited had come up with the idea of a gift to the Church.”

Submissions

11.	Mr Vallat described the issue as whether the donation of £200,000 should be treated as further consideration for the Appellant’s G Limited shares.  He submitted that the 1992 Act provided limited guidance as to what constituted consideration and referred to sections 17, 18, 37 and 38 for illustrative purposes.  In the absence of statutory direction, the consideration is identified from the agreement between the parties

12.	Mr Vallat analysed the facts in his Skeleton Argument.  However, the difficulty with this course is that it must anticipate the evidence.  His submission on the facts was that the reduction in price from £3.7m to £3.5m was pure coincidence.

13.	He submitted that it was important to examine what had been agreed between the parties not what might have been agreed.  The initial price was reduced to £3.5m because it was felt to be too high relative to the price being paid for another company.  There was no need to find any explanation for an undervalue as the £3.5m paid was the market value of the shares.

14.	The explanation for the donation was to be found in the fact that the Appellant and B had known each other for eight years; B was aware of Crusader’s church and wanted to help a good cause; the donation had been agreed some time before August 1999 when KPMG sought clearance; the donation was not surprising in the context of Christian brotherhood and was relatively small to C Limited.  One need not seek a further explanation.

15.	There was no agreement that the donation was to be part of the consideration for the Appellant’s shares.  It was not enough that the Appellant might benefit.  There was no connection between the consideration of £3.5m on 13/10/99 and the payment of £200,000 on 15/10/99.  There was no agreement that the donation was redirected consideration that might otherwise have been paid to the Appellant.

16.	Mr Hone submitted that the £200,000 was part of the consideration.  C Limited was always willing to pay £3.7m and the donation was part of the underlying deal.  The letters dated 13/8/99 [R/B/21] and 13/1/04 [R/B/34] acknowledged the link between the transfer of the shares and the payment to the Church.  Y’s letter supported that view.  That letter cannot readily be dismissed as it was given in response to a statutory request under section 20 of the Taxes Management Act 1970.

Discussion

17.	The Statement of Facts begins by noting in a footnote that G Limited was formerly known as SN Limited.  Such a statement is generally taken to mean that a company has changed its name at some point.  However, an Appendix to a letter dated 13/8/99 from KPMG to HMRC [R/B/21 at 23] clearly identifies SN Limited as a separately registered company.  In addition M & Co provided information to HMRC by letter dated 23/6/03 [R/B/27] to the effect that SN Limited changed its name to ST Limited on 26/4/00.  Nothing appears to turn on this but it serves to illustrate a certain vagueness and ambiguity about much of the information provided by or on behalf of the Appellant.  In addition, the documents produced were distinctly limited.  Neither party produced the share purchase agreement.  Selections only were produced from the files of various participants.  HMRC spent some considerable time encouraging the Appellant to produce full documentation [see for example HMRC letter to M & Co dated 11/3/05 [R/B/49]

18.	Much of the correspondence produced concerned the enquiries HMRC were making into the Appellant’s Tax Return for the year ended 5/4/00 and in particular various capital gains transactions.  It was also pointed out that clearance letters had been obtained in relation to the sale of G Limited [R/B/10- noted in finding of fact 24 above].  This led to a dispute and much correspondence as to whether HMRC were barred from assessing the Appellant at all.  However, in his skeleton argument Mr Vallat accepted that a conclusion in relation to another taxpayer did not prevent HMRC from assessing the Appellant on a different basis.  I need not therefore dwell upon whether HMRC would have reached a different conclusion had all the material and evidence adduced at this Hearing been before them at that stage.  However, it is of some interest to note that C Limited’s tax treatment of the payment of £200,000 (as disclosed in the documents produced at R/D) does not, on close examination, assist the Appellant.  The correspondence produced is brief.  KPMG’s argument is based essentially on the fact that there was no mention of this sum in the Share Purchase Agreement.  Whatever enquiries HMRC made, they simply accepted KPMG’s view without giving any explanation or reasons.

19.	It was plain from Crusader’s evidence, which he gave on affirmation, notwithstanding or conceivably because of his Christian fellowship connections, that he disliked Y.  In the course of his evidence, he observed that Y was good at certain aspects of his work, but he accused him of being very self centred, disloyal and of committing adultery.  Such evidence, whether true or not, was extraordinary, quite unnecessary and has caused me to look particularly closely at the case being presented by the Appellant.

20.	The Appellant, in the course of his evidence, also criticised the author of the KPMG letters dated 14/9/99 [see finding of fact 18 above].  He said the author, E, was not 100% appraised of what was going on.  While that may or may not be true, E has not been brought to address that criticism.  Moreover, the terms of his contemporaneous correspondence fit with the views subsequently given in writing by Y and indeed the Appellant himself.  Y was not brought to speak to or be cross examined upon the terms of that letter.  His place of work was known to both parties.  It was suggested by Mr Vallat that this was simply how Y saw things but did not reflect the true position.  What can be said is that there was no financial benefit for Y in writing as he did; and he was, as Mr Hone pointed out, responding to an official request from HMRC.  Y has no interest in the outcome of this appeal.

21.	In his letter dated 6/7/05 [see finding of fact 28] the Appellant refers to C Limited offering to help with the commercial construction costs of the church as a way of overcoming the obstacle put up by one of the overseas companies asserting that G Limited was overvalued.  This plainly confirms the link between the £200,000, the overall transaction and the consideration.

22.	Here, the commercial reality of the transaction was that the purchase price for the shares was £3.7m; that figure did not change; however, part of the purchase price was by agreement diverted to the Appellant’s church.  I have no doubt on the facts that had that not been done, the deal would not have been carried into effect.  No other means of overcoming the obstacle referred to above was, on the evidence, devised.  In the light of the correspondence from the accountants, and the Appellant’s own letter, I cannot accept the invitation to conclude that the payment of £200,000 by pure coincidence exactly bridged the gap between the sums of £3.7m and £3.5m and was not part of the consideration for the shares.

23.	In his evidence the Appellant stated that he had for the purposes of preparing his written statement, spent some time reviewing files and papers.  At paragraph 21 of his written statement he states that the charitable donation was offered “at a time when the whole deal …. was still a pipe dream”.  I am unable to accept that evidence.  In the course of his oral evidence, he was asked to be more specific.  He said that he could not remember the specific month when the donation was offered but that he though it was spring time.  He was vague about timing but it seemed to me he was trying to create the impression that the gift was arranged before the share purchase deal began to fall into place.  This line does not sit happily with the correspondence and in particular the Appellant’s own letter dated 6/7/05.  In cross examination, he was pressed about the relationship between the donation and the share transaction.  He denied that the £200,000 was inextricably linked with the figures of £3.7m and £3.5m.  His response to being asked why the donation was made was to refer to the Bs’ similar philosophical outlook.  He also maintained that he did not discuss the detail of the negotiations with B; he accepted that the negotiations did come up in conversation, but were, he maintained, not discussed in detail.  He acknowledged that he may have mentioned the cost of the church renovation work to them.  

24.	My overall impression was that the Appellant was decidedly uncomfortable in relation to this chapter of his evidence.  He was an intelligent, articulate man, and obviously a successful businessman.  Yet, he was quite vague on what seemed to be important detail. I take into account, as the Appellant observed, that these events occurred many years ago. However, they have been discussed in correspondence for some years now. The Appellant had access to various papers and was able to recall much detail on related matters.

25.	No Share Purchase Agreement has been produced and no other documents identifying the consideration have been produced apart from C Limited file note bearing the date 24/6/99; that document links the donation with the overall price but unaccountably specifies a total of £3.9m and not £3.7m; that document was produced to HMRC by KPMG under cover of their letter dated 25/11/05 [R/C/19]; that oddity is unexplained on the evidence. 

26.	Mr Hone relied on certain aspects of the correspondence emanating from one or more of the Appellant’s advisers.  He was plainly entitled to do so particularly where the correspondence is close in date to the events being discussed.  It simply will not do for an Appellant to criticise the terms of such correspondence without bringing the author to be confronted with that criticism.  The source of much of the material in the correspondence must ultimately have been the Appellant himself.

27.	My conclusion on the facts is that I am simply not satisfied that the donation of £200,000, which bridged the gap between £3.7m and £3.5m was just “pure coincidence”.  It seems to me that at some stage C Limited and the Appellant decided upon the donation as a commercial expedient to push through the deal.  The donation was part of the overall commercial consideration.  Y had to be compensated but the Appellant had the comfort that his church obtained a substantial benefit.  This was an extremely large charitable donation compared with C Limited’s charitable donations for the previous year [£17,000- see finding of fact 21 above].  The Appellant has failed to satisfy me that the sum of £200,000 was not part of the consideration for the shares. He has thus failed to satisfy me that the Assessment to which this appeal relates is flawed.  No question on quantum was argued and accordingly in these circumstances the Assessment must stand.

Disposal

28.	The appeal is dismissed.

29.	In the course of the proceedings, which, initially, were held in public, Mr Vallat requested that the remainder of the proceedings be held in private.  As no member of the public was in attendance, and as Mr Hone did not object, I agreed.  Mr Vallat also asked that the decision be anonymised.  The decision is being released to the parties in its present form.  They should liaise with the Office of the Special Commissioners with a view to preparing a suitably anonymised decision for publication.  This administrative exercise should not be regarded by the parties as an opportunity to propose substantive changes to the text of this Decision.  

J GORDON REID QC, F.C.I.Arb
SPECIAL COMMISSIONER

RELEASED: 13 July 2007

SC 3208/2006