Looney, Kiernan Looney & Associates (Partnership) v Revenue & Customs (INCOME TAX/CORPORATION TAX : Partnership) [2018] UKFTT 619 (TC)

"Early termination may only occur on written notice on the basis set out in the Financials. On Trafigura serving written termination notice and paying the early termination fee the Program will be discontinued and Trafigura and KLA will have no further obligations to the other in relation to payment or delivery of the Program respectively except that the confidentiality, Materials terms and other provisions of this agreement intended to apply after termination will continue to apply with full force and effect. If no written notice is served under and in accordance with the timescale set out in clause 2.5 Trafigura will pay the license fee for 2010 by 15 th December 2009, and the license fee for 2011 by 15 th December 2010."

"Written notice must be received by KLA on or before 1st November 2009 Non refundable deposit + £1,000,000 early termination fee to be paid to KLA within fourteen days of notification"

"It is intended that the program is dynamic in nature and will evolve subject to the specific requests (within reason) of Trafigura BV."

"The terms of the Materials Agreements will be regarded as internal terms of this agreement, and will continue to apply after early termination of this agreement for any reason. KLA is entitled to refuse to start the Program if this is not done and may refuse to continue the Program if there is evidence of breach of the terms or conditions of the Materials, whilst acting reasonably in all cases."

"Mike- valuable time has been lost on both sides. Your message radiates a lack of partnership/trust. I am not used to working/being controlled this way, or having to deal with so much dis-trust/upset/confusion/personal slights on my character. My health is suffering as a result. The program needs to be exciting and enjoyable, and everyone needs to feel acknowledged and one team. The current tension and stress in our relationship is destructive. I would like to meet you alone to discuss the above, including the early termination provision."

"It was clear to me … that the negatives of the KLA Program had started to outweigh the positives. The question was whether we really thought that we were going to learn more and get value for money from the KLA Program over the next couple of years. We were battle-weary and fed up with the constant tug of war with [Mr Looney] and the time [Mr Wainwright] and I had to devote not only to the KLA Program but also to dealing with [Mr Looney's] issues, such as his copyright concerns."

"[W]hat we had hoped for, but did not receive, was more focus, structure and development of the KLA Program from [Mr Looney …. [T]he KLA Program … had become repetitive, and had failed to develop and evolve as [Mr Lorinet] and I had been led to believe it would. If anything was too complex, it was my day to day dealings with [Mr Looney] and his attitude to his [intellectual property] rights. His needy style was all encompassing and his sense of priorities warped; he considered the KLA initiative to be the most important thing in Trafigura. The simple fact is that [Mr Lorinet] and I did not consider that the KLA Program offered value for money and we could no longer justify to ourselves or the board the time and expense required for the KLA Program to continue for a further two years." 48. The High Court therefore dismissed Mr Looney’s claim for damages for breach of contract. Mr Justice Newey held that Trafigura had lawfully invoked the termination clause (Clause 1.10) of the letter of agreement as it was entitled to do. The Judge held there was no restriction on Trafigura’s ability to terminate the contract with KLA so long as it complied with terms of clause 1.10, which it did. There was no implied term requiring it to terminate on ‘proper and reasonable grounds’. Mr Justice Newey gave his reasons at paragraph 90 of his judgment which included the following: ‘ii) Clause 1.10 makes commercial sense as it stands. Mr Morpuss' construction of the clause does not, in my view, flout "business commonsense", and there is no necessity to read in a qualification such as Mr Collings contended for. There is nothing nonsensical about Trafigura being given an unfettered right to terminate if it paid Mr Looney £1 million. As Mr Collings said in his submissions, £1 million "buys you a lot"

"[Y]ou are talking here about a delivery of what I would call 'soft skills' which is performance management, it's very hard to quantify. If things don't go as planned it's very hard to apportion blame, in my mind, to say, well, is it Trafigura was not committed enough? Is it Kieran Looney was too difficult? What is it? Therefore it's a lot simpler, to avoid any argument, to have something that is very transparent and that's how I read the break clause as a very transparent mechanism which said what was in the contract"; ….. vi) Dominion Corporate Trustees Ltd v Debenhams Properties Ltd was a very different case. What was at issue there was the circumstances in which a contract could be terminated for breach. No such question arises in the present case: the termination clause is not tied to breach. Moreover, there is provision for Mr Looney to be compensated to the tune of £1 million;’ 49. The Tribunal, on request, was provided with the Particulars of Claim for the claim where Mr Looney was named as the personal and only Claimant. In the Particulars Mr Looney claimed damages including the £6 million in balance of fees and at paragraph 104 Mr Looney reserved: ‘rall of his rights and remedies concerning infringement of copyright and breach of confidentiality (including damages and interlocutory relief to prevent any continuing breach or infringement) in respect of the KLA Program, the Materials and the Additional Materials pending clarification of the precise ambit of TrafiTalent’. 50. TrafiTalent was a separate training program delivered to other staff of Trafigura which Mr Looney alleged had been derived from the KLA Program. However, at paragraph 95 of his judgment Mr Justice Newey held that he ‘did not consider that the KLA Program had any significant impact on the development of TrafiTalent’. HMRC’s enquiry 51. On 9 April 2009 Mr Looney incorporated the company Kieran Looney and Co Limited of which he was a director and shareholder. 52. On 2 January 2011 Mr Looney submitted his 2009-10 Self-Assessment Tax Return which contained no partnership pages. 53. Following the judgment of Mr Justice Newey in February 2011, on 26 May 2011 HMRC advised Mr Looney that both he and Kieran Looney & Co Limited (“the limited company” or “KLCL”) had been registered for investigation under Code of Practice 8 – “Cases where Civil Investigation of Fraud procedures are not used”. 54. On 26 May 2011 HMRC opened an enquiry under section 9A Taxes Management Act (TMA) 1970 into Mr Looney’s self-assessment return for the year ending 5 April 2010. On the same date an enquiry under Paragraph 24 of Schedule 18 to the Finance Act 1998 was opened into KLCL’s self-assessment returns for the periods ended 8 April 2010 and 30 September 2010. 55. No enquiry under Section 12AC Taxes Management Act 1970 was opened into the partnership returns for 2008-2009 or 2009-2010. Hence it is argued that a discovery assessment was later made. 56. On 23 June 2011 HMRC Officers Sherrin and Cashmore met Mr Looney and his agent Mr Nimal Fonseka. The meeting notes state at paragraphs 40-42 that Mr Looney had received a £3 million fee and £1 million termination payment from Trafigura Ltd (sic) but that: “Mr Fonseka was not sure if Trafigura could sue for the return of the money and there was a question mark over the income so he left it out because the downside was that Mr Looney could lose millions….Mr Fonseka said he regarded the £1 million as compensation so not taxable. Sherrin said that there was plenty of case law to support the fact that compensation for contract terminations were in fact taxable”. 57. On 5 September 2011 Mr Looney submitted the Partnership return for the year ended 5 April 2010 showing no income or expenses. 58. On 17 January 2013 HMRC opened an enquiry under Code of Practice 8 into KLCL’s self-assessment return for the accounting period ending 30 April 2011. 59. On 18 April 2013 HMRC officers met Mr Fonseka, during which meeting Mr Fonseka agreed that: a) the income from Trafigura was proper to the accounts of the partnership; and b) should be recognised in the accounts for the period ending 31 December 2009. 60. This agreement was conditional on HMRC accepting that only £3 million in revenue was attributable to the partnership as income. 61. On HMRC refusing to accept that only £3 million was attributable on the basis that the £1 million termination payment was also taxable as income of the partnership, Mr Fonseka subsequently rescinded the agreement in a letter dated 24 January 2014. 62. Therefore, there was no agreement as to the tax treatment of the early termination fee paid by Trafigura or whether the sums paid under the contract (whether £3 million or £4 million) were attributable to the partnership or the limited company, KLCL. 63. On 12 June 2013 Mr Looney submitted revised partnership accounts for the years ended 31 December 2008 and 31 December 2009. 64. The revised partnership accounts showed: 31/12/2008 Original Revised Turnover £105,166.00 £381,760.00 Expenses Reimbursement £276,594.00 Motor/premises £1,171.00 £185.00 Administrative expenses £7,017.00 £68,747.00 Finance expenses £585.00 £534.00 Depreciation £3,503.00 £12,276.00 £3,502.00 £349,562.00 Net Profit £92,890.00 £32,198.00 Allocated to : K Looney £31,898.00 £1,000.00 Reality coaching £60,992.00 £31,198.00 31/12/2009 Original Revised Turnover £0.00 £3,050,372.00 Expenses Reimbursement Motor/premises Administrative expenses £2,612,043.00 Finance expenses £96.00 Depreciation £0.00 £2,627.00 £2,614,766.00 Net Profit £0.00 £435,606.00 Allocated to: K Looney £435,606.00 Reality coaching £0.00 65. HMRC was unable to reconcile the amounts shown in the revised accounts with the analysis previously supplied by Mr Looney. 66. On 2 January 2014 the HMRC Officer conducting the investigation, Officer Margaret Mousley, amended the partnership return for the accounting period ended 31 December 2009 as follows: Accounting Period Ending 31/12/2009 Turnover £4,000,000.00 The amount paid by Trafigura Ltd and removed from the accounts of the company Expenses £2,443,257.00 The expenditure removed from the revised accounts of the company. Net Profit £1,556,743.00 Allocated to : K Looney £1,556,743.00 Balance attributable to Mr Looney Reality coaching Nil As revised partnership accounts 67. On 24 January 2014 Mr Fonseka lodged formal appeals against the amendments made to the partnership returns for 2008-2009 and 2009-2010 on behalf of Kieran Looney & Associates. Mr Fonseka requested a statutory review of HMRC’s decision. 68. On 12 March 2014 HMRC issued a review conclusion letter upholding the decision to amend the partnership returns and the amounts by which the returns had been amended. 69. On 2 April 2014 HMRC issued a Notice of Assessment for 2008-2009 to Mr Looney charging the tax due on the revised partnership profits and amended Mr Looney’s self-assessment return for 2009-2010 to reflect the revised partnership profits chargeable for that year. 70. On 20 May 2014 Mr Looney appealed against the amendments to the partnership returns for the years ending 31-12-2008 and 31-12-2009. Only the amendment to the accounting period to 31 December 2009 and self-assessment return for the tax year 2009-2010 remain under appeal. Mr Looney’s evidence on the partnership appeal 71. Mr Looney gave evidence regarding the Trafigura contract relying upon his witness statement, which stood as his evidence in chief. He was cross examined. The Tribunal finds the following facts on the balance of probabilities and indicates where it rejects his evidence as appropriate. The Trafigura Contract 72. In January 2009, Mr Looney stated that KLA entered into a contract to provide consultancy work for a Trafigura, a commodities trading company which is based in Switzerland. Mr Looney decided to operate this contract through Nower Inc. (“Nower”). He set up Nower specifically for this purpose. He was the sole director and shareholder of Nower, which was a company based in Panama. He claimed that a bank account for Nower was opened in Switzerland in order to facilitate the receipt of funds from Trafigura. 73. Although he could not remember precisely when, he recalled that Nimal Fonseka of Fonseka & Co Ltd (Mr Fonseka), advised him to account for these monies (from Trafigura) in the UK through a UK company to avoid any allegations of tax evasion by HMRC. He claimed he was keen to do things properly and he followed his advice in declaring the income from Trafigura as set out below. 74. In April 2009, he set up a UK company of which he was also the sole director and shareholder. This company was called Kieran Looney & Co Ltd (“KLCL”). KLA’s VAT registration was then terminated and final accounts for KLA were prepared and submitted to HMRC on the 22 December 2009. Mr Looney also closed down Reality Ltd and submitted the final accounts for this company to HMRC and Companies House on the same day. 75. During this period, Mr Looney stated he agreed with Trafigura to change the terms of the contract and to effectively novate the rights and obligations in the contract over to Nower. In the circumstances, Trafigura paid the first tranches of fees- £3 million to Nower. 76. As is set out above, on the 14 January 2009, KLA entered into an agreement with Trafigura to provide the latter with the “KLA Propriety Performance Management System Program”. The agreement provided for the transfer of a non-refundable deposit of £2,400,000 to “KL Account” on 21 January 2009 and £600,000 on the 1 August 2009. The agreement also provided for a payment of £1,000,000 in respect of an early termination of the contract by Trafigura. 77. Once the contract was signed, as above, Mr Looney stated that it dawned on him that the best way of operating the business was probably through a company and therefore he set a company called Nower Inc. (Nower), for this purpose. This was incorporated on the same day the contract was signed. He was the sole director and shareholder of Nower, which is based in Panama. A bank account for Nower was opened in Switzerland in order to facilitate the receipt of funds from Trafigura. 78. The Tribunal does not accept Mr Looney’s evidence that he assigned, transferred or novated the rights of the KLA partnership to Nower (or any other entity such as KLCL). There was nothing in writing which evidenced the alleged transfer variation or assignment of the contract, as required by Clause 1.12 of the agreement and no reason was put forward for why Trafigura would agree to this occurring. There was no evidence as to: who on behalf of Trafigura agreed the alleged variation, transfer, novation or assignment; when Trafigura made the alleged agreement to vary; and why there was no independent or written evidence of this alleged agreement to vary. 79. It also has to be borne in mind that Trafigura sought to terminate the contract as early as October 2009 and paid their termination fee of £1 million to the bank account of KLA and not Nower Inc. Further, during the hearing of the appeal, in his oral evidence, the Appellant did not suggest that the contract was novated to Nower but suggested that it was novated to the company, KLCL. 80. Trafigura terminated the contract after one year of its operation and paid £1 million as compensation into the bank account of Mr Looney (trading as the KLA partnership). The Tribunal does not accept that this was an error by Trafigura as Mr Looney claimed, nor that the monies should have been paid to Nower because Nower were the contracting party at this point. The fact that the original £3 million in payments under the contract were paid in February and August 2009 to Nower does not determine it as the contracting party at that time. 81. It is apparent from the face of the contract, the letter of Agreement, the nature of the Appellant’s claim against Trafigura and the judgment of the High Court that the KLA partnership, was the contracting party with Trafigura. Mr Looney claimed personally against Trafigura in his High Court claim, there was no suggestion that KLCL or Nower were the contracting party. 82. Further, KLCL was not incorporated until April 2009 some three months after the contract was signed in January 2009. At no time did KLCL receive any of the payments under the contract. 83. KLCL later accounted for the payments of the money under the contract (£3 million and £1 million) in the company accounts of KLCL which were submitted to HMRC. HMRC issued an amendment to the partnership accounts, and they included £3 million in the partnership income, the turnover from income that had been assigned to KLCL. HMRC also included the £1 million compensation payment that Mr Looney received from Trafigura. Mr Looney claimed these actions of HMRC were wrong. 84. For the reasons set out below the Tribunal rejects this evidence of Mr Looney and is satisfied on the balance of probabilities that HMRC were right to include the £4 million as income of the partnership in their accounts. 85. For the reasons set out above the Tribunal rejects Mr Looney’s claim that the contract was varied by agreement to transfer, assign or Novate Nower (or KLCL) as the party performing the obligations and receiving the benefit of the agreement. 86. The fact that Trafigura paid the initial tranches of £2,400,000 and £600,000 to the Nower bank in Switzerland does not evidence any variation to the contracting parties. The Tribunal is satisfied that the terms of Clause 1.12 of the contract on variation were clear in that they required signed written agreement of both parties but they were not fulfilled. Mr Looney’s case that the contract was novated to Nower, a Swiss incorporated company, does not sit comfortably with his assertion that KLCL, a later incorporated UK company was the correct entity in which to declare his income. The original intention behind the payment to Nower appears to have been to avoid payment entering the UK jurisdiction. 87. Mr Looney claimed that he elected which entity through which he should declare this income, and that he recognised this income in KLCL, a UK based company that he owned, on the advice of Mr Fonseka. However, as above, KLCL was only later incorporated, and an attempt only latterly made to declare the payments for tax purposes on returns (whether through the partnership or the company). 88. Mr Looney stated that the Trafigura income should remain in KLCL, where it was initially declared by him. Termination payment of £1 million from Trafigura 89. Mr Looney claimed that Trafigura terminated the contract unilaterally and paid £1 million as compensation and that the compensation payment was paid by error by Trafigura to his personal / KLA bank account and not to Nower. 90. Mr Looney claimed that the compensation was received as a payment for the continued use of the secret processes used (or intellectual property) in his performance management system program. He claimed it was not a trading or revenue receipt in any way. He confirmed that he used a computerised management performance system which was unique (this is known as the “KLA Proprietary Performance Management System Program”). Trafigura used that management performance system during the period of his engagement with them, and also after the period of engagement. 91. Mr Looney claimed he placed the compensation term in the agreement with Trafigura precisely to compensate for the usage of the management performance system. He realised that once it was in place it would be very difficult to ensure that it was not being used by Trafigura after the contract was terminated. He also confirmed that the £1 million sum was intended to be net of taxation and not gross of taxation. Mr Looney claimed the sum itself in fact vastly under compensated him for the use of this proprietary product. The contract with Trafigura was for the provision of services in order to properly utilise and run the system. 92. The Tribunal rejects Mr Looney’s evidence on the balance of probabilities for the following reasons. 93. It is apparent both from the face of the contract, the plain wording of Clause 1.10, and from the judgment of Mr Justice Newey, that the purpose of £1 million termination payment was simply to compensate or provide consideration to Mr Looney for the early termination of the contract. The contract terms do not suggest that that the £1 million is anything other than an early termination payment. 94. Mr Looney has failed to satisfy the Tribunal that HMRC’s view of the termination clause was incorrect. The Tribunal is satisfied that the purpose of the payment was to be compensatory to KLA for the lost opportunity to trade and profit from the remaining two years anticipated under the contract. 95. Clause 1.10 was not expressed in the contract to be in anyway compensatory in respect of the acquisition of any intellectual property right or secret process contained in the KLA program. Mr Looney’s particulars of claim do not suggest that the termination fee was any such form of compensation. Nor did Mr Justice Newey find the termination payment so to represent. 96. The particulars of claim in effect allege that Trafigura was in repudiatory breach of contract by terminating it without reasonable cause and they claim damages for the loss of earnings on the remainder of the contract. To the extent that they make any claim in respect of any intellectual property rights they do so in relation to the unrelated allegation that Trafigura drew on the KLA program to develop their other training program, TrafiTalent, a claim rejected by the Judge as set out above. Thus, the Tribunal’s finding that the early termination payment was not connected to any acquisition of any asset or in respect of capital, is consistent with the finding of High Court. 97. Indeed, the numerous contract provisions dealing with intellectual property and copyright, some of which are set out above, specifically excluded Trafigura from the use, acquisition or licensing of the KLA Program except in the circumstances where Trafigura paid for and received the service for the full three years anticipated by the contract at which point Trafigura were to obtain a continuing licence to use the program. The Tribunal rejects Mr Looney’s evidence and submission that the payment of the termination fee was in any way connected to the acquisition by Trafigura of any secret process or intellectual property – the terms of the contract make no such connection. Law 98. Pursuant to section 31 Taxes Management Act 1970 (“TMA 1970”) a person may appeal any amendment of a partnership return under section 30B(1) of the (amendment by HMRC where loss of tax is discovered). The terms of section 30B are set out below. 99. An assessment involving a loss of income tax brought about carelessly by a person may be made at any time not more than 6 years after the end of the year of assessment to which it relates. 100. The burden of proof is upon the Appellant partnership to prove that: the amendment to the partnership return charges it to the incorrect level of tax; HMRC incorrectly attributed the income from Trafigura to the partnership rather than to KLCL or Nower or any other entity; and the £1 million termination payment was not trading income or a revenue receipt. First Issue – attribution of income to the partnership or the KLCL? 101. Sections 847-850 of the Income Tax (Trading and Other Income) Act 2005 (“ITOIA 2005”) provide for: the income tax treatment of partners in partnerships, whether the partners are resident in the UK or abroad; the calculation of the firm’s profits or losses; and allocation between partners. They do so in the following terms: 847 General provisions (1) In this Act persons carrying on a trade in partnership are referred to collectively as a “firm”. (2) The provisions of this Part [which are expressed to apply to trades also apply, unless otherwise indicated (whether expressly or by implication)]— (a) to professions, and (b) in the case of this section and sections 849, 850, 857 and 858 to businesses that are not trades or professions. (3) In those sections as applied by subsection (2)(b)— (a) references to a trade are references to a business, and (b) references to the profits of a trade are references to the income arising from a business. [(4) For the purposes of this Part, a person is an indirect partner in a partnership (“the underlying partnership”) if the person is a partner in— (a) a partnership which is a partner in the underlying partnership, or (b) any partnership which is an indirect partner in the underlying partnership by virtue of the preceding application of this subsection.] 848 Assessment of partnerships Unless otherwise indicated (whether expressly or by implication), a firm is not to be regarded for income tax purposes as an entity separate and distinct from the partners. Calculation of partners' shares 849 Calculation of firm's profits or losses (1) If— (a) a firm carries on a trade, and (b) any partner in the firm is chargeable to income tax, the profits or losses of the trade are calculated on the basis set out in subsection (2) or (3), as the case may require. (2) For any period of account in which the partner is a UK resident individual, the profits or losses of the trade are calculated as if the firm were a UK resident individual. (3) For any period of account in which the partner is non-UK resident, the profits or losses of the trade are calculated as if the firm were a non-UK resident individual. [(3A) For any tax year that is a split year as respects the partner, this section has effect as if the partner were non-UK resident in the overseas part of the year.] [(4) In calculating under subsection (2) or (3) the profits of a trade for any period of account no account is taken of any losses for another period of account.] [850 Allocation of firm's profits or losses between partners] [(1) For any period of account a partner's share of a profit or loss of a trade carried on by a firm is determined for income tax purposes in accordance with the firm's profit-sharing arrangements during that period. This is subject to sections 850A [to 850D] [and section 12ABZB of TMA 1970 (partnership return is conclusive)]. (2) In this section and sections 850A and 850B “profit-sharing arrangements” means the rights of the partners to share in the profits of the trade and the liabilities of the partners to share in the losses of the trade.] 102. Thus the calculation of the profits and losses of a partner uses the same principles as if the firm is an individual. In order to calculate the partner’s profits or losses of the trade then general accounting practice must be followed as provided in section 25 of ITOIA 2005: 25 Generally accepted accounting practice (1) The profits of a trade must be calculated in accordance with generally accepted accounting practice, subject to any adjustment required or authorised by law in calculating profits for income tax purposes. (2) This does not— (a) require a person to comply with the requirements of [the Companies Act 2006 or subordinate legislation made under that Act] except as to the basis of calculation, or (b) impose any requirements as to audit or disclosure. (3) This section is subject to [section 25A (cash basis for small businesses)]. (4) This section does not affect provisions of the Income Tax Acts relating to the calculation of the profits of Lloyd's underwriters. Validity of no oral modification clauses of a written contract 103. At paragraph 10 -17 of his Lordship’s judgment in Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24 Lord Sumption gave the reasoning for the majority decision of the Supreme Court that ‘no oral modification clauses’ should be given effect in English Law. Therefore, a contractual term prescribing that an agreement may not be amended save in writing signed on behalf of the parties is legally effective. The Supreme Court’s recent judgment provides binding authority and overrules earlier judgments of the Court of Appeal such as Globe Motors Inc v TRW Lucas Varity Electric Steering Ltd [2016] 1 CLC 712 , para 101-107, relied upon on behalf of Mr Looney, which suggested that such clauses may be ineffective. Second issue – termination payment – trading revenue or capital payment 104. In Evans Medical Supplies, Ltd v Moriarty (H M Inspector of Taxes) [1957] UKHL TC_37_540 Viscount Simonds considered the issue of when a payment in respect of a secret process might be a trading receipt or capital payment. His Lordship set out the factual background to the Appellant’s contract at 37 TC 573: On 20th October, 1953, it entered into an agreement with the Government of the Union of Burma under which it became entitled to receive and received the sum of £100,000 and certain other sums therein mentioned. It will be necessary for me to refer in some detail to this agreement. The Company was duly assessed in respect of its profits as wholesale druggists for the year 1954-55 under Case I of Schedule D, and in this assessment the sum of £100,000 was treated as a receipt of its trade liable to be included in the computation of its profits. Against this assessment the Company appealed to the Commissioners for the Special Purposes of the Income Tax Acts, who upheld the assessment but at the instance of the Company stated a Case for the opinion of the High Court. The case came on for hearing before Upjohn, J., who allowed the appeal of the Respondent Company and reversed the determination of the Special Commissioners. From his judgment the Crown appealed to the Court of Appeal. That Court discharged the Order of the learned Judge and ordered that the case be remitted to the Special Commissioners with the direction “ to ascertain in accordance with the judgments and subsequent proceedings o f the Court of Appeal what part, if any, of the amount of One hundred thousand pounds (£100,000) should be attributed to the imparting of the secret processes to the Government o f Burma, such part to be treated as a capital receipt, ^nd to adjust the assessment accordingly, and with power to the parties to call such evidence as they may consider necessary ”, 105. His Lordship continued at 576: The operative part of the agreement is divided into five parts, and again I think it desirable to set out the provisions of part I in full. They are as follows: “ In consideration of the payment to Evans Medical by the Government of the Union of Burma of the capital sum of £100,000 (One hundred thousand pounds sterling) payable in the United Kingdom free from any deduction whatsoever (A) Evans Medical will provide and make available to the Government of the Union of Burma all drawings designs and plans and technical and other data and ‘ know-how ’ necessary for the establishment erection and installation of the factory and the commencement of production thereat of the pharmaceutical and other products mentioned in the Schedule hereto (B) Evans Medical will supply to the Government of the Union of Burma designs and lay-out for the erection of plant including machinery and equipment and all other requisites and shall supply full data and specifications with drawings and instructions and all other information relating to the sources and manufacturers and suppliers of such machinery and equipment (C) Evans Medical will make available to the Government o f the Union of Burma all information relating to the supply of prototype machinery and equipment for the manufacture of the pharmaceutical and other products mentioned in the Schedule hereto (D) Evans Medical hereby undertake that during the currency of this Agreement the facilities hereby agreed to be furnished to the Government of the Union of Burma under the preceding sub-clauses of this clause shall be exclusive to the said Government and shall not during the currency hereof be furnished to any other person or corporation in Burma ”. 106. His Lordship concluded at 579: It still remains to ask whether, assuming that the £100,000 was in whole or in part consideration for the sale and purchase of an asset or assets, such assets were, to use the language of the Company’s first contention, “ items of fixed capital This is a question frequently arising in Income Tax cases, and I should be disposed in general to accept the determination of the Commissioners. For the line is often difficult to draw. But in the present case, bearing in mind particularly what Lord Radcliffe said in Edwards v. BairstowQ), [1956] AC 14 , I come to the conclusion that the view of the Commissioners cannot be sustained. It was perhaps a doubt in the mind of the Inspector of Taxes whether this sum could be regarded as an income receipt of the Company’s trade as “ wholesale druggists ” which led to the alternative suggestion of a new trade. But, however that may be, the evidence—I am now looking at the question propounded in the Case—is overwhelming that the Company parted with a capital asset and received for it a capital sum. Of paramount, if not decisive, importance is the agreement itself. I need not repeat its recitals or its terms. The Company parted with something for which the Government was prepared to pay no less than £100,000. Its possession had secured for the Company a substantial share of the Burmese m ark et: its loss will mean, in the words of the Commissioners, that “ the Company’s Burmese agency will become progressively less important” , or, in other words, that the Company has parted with an asset which was the source, or one of the sources, of its profit. I venture to repeat the question stated by Bankes, L.J., in British Dyestuffs Corporation (Blackley), Ltd. v. Commissioners of Inland Revenue, 12 T.C. 586, at page 596: “. . . looking at this matter, is the transaction in substance a parting by the Company with part of its property for a purchase price, or is it a method of trading by which it acquires this particular sum of money as part of the profits and gains of that trade? ” Submissions on behalf of the Appellant 107. Mr Fonseka and Mr Singh both made submissions on behalf of Mr Looney. Which entity is the relevant entity to attribute the income from Trafigura for tax purposes? 108. They submitted that on 14 January 2009, KLA entered into an agreement with Trafigura to provide the latter with the “KLA Propriety Performance Management System Program”. The agreement provided for the transfer of a non-refundable of £2,400,000 deposit to “KL Account” on 21 January 2009 and £600,000 on the 1 August 2009. The agreement also provided for a payment of £1,000,000 in respect of an early termination of the contract by Trafigura. 109. They submitted that the general provisions to this contract stated the following- (a) These terms set out the entire agreement and understanding of KLA and Trafigura in relation to their subject matter, to the exclusion of any other terms or representations, and may not be varied except in writing signed by a duly authorised signatory on behalf of each party. (b) These terms are personal to KLA and Trafigura and may not be assigned of transferred in whole or part by either of them (c) These terms are subject to English Law and each party submits to the exclusive jurisdiction of the English courts. 110. They submitted that having taken into account the size and complexity of this contract Mr Looney decided to operate this contract through Nower Inc. (Nower), which he set up for this purpose. Mr Looney was the sole director and shareholder of Nower which is based in Panama, A bank account for Nower was opened in Switzerland in order to facilitate receipt of funds from Trafigura. Mr Looney informed Trafigura of this change to the contract. They submitted that Trafigura agreed to this change as they sent the initial tranches of £2,400,000 and £600,000 to the Nower bank in Switzerland. 111. They relied upon the case of Globe Motors v TRW Lucas , in which the Court of Appeal decided that inclusion of a clause intended to prevent variation of the contract other than in writing would not prevent future variation of a contract orally or by conduct. MWB Business Exchange Centre v Rock Advertising confirms the decision in Globe. 112. They also submitted that the case of Multiplex Construction v Honeywell Control Systems confirmed that variation is permitted by conduct. 113. They submitted that the transfer of income can be effected by a simple cross (management) charge and is not designed to circumvent taxation. Mr Looney was entitled to elect as to which entity should declare this income, especially as he controlled and owned all the entities concerned. 114. They submitted that Mr Looney recognised this income in his UK based company he owned (KLCL) on the advice of Mr Fonseka. They accepted that HMRC had contested this treatment of the income and held that it should be recognised in KLA. They submitted that all the entities concerned are wholly owned by Mr Looney and based in the UK. They accepted that HMRC officer Mousley removed this income and the related expenses from KLCL and inserted these into KLA (although this entity had ceased trading and had deregistered from VAT). 115. They submitted that during a series of meetings that Mr Looney and his accountant had with HMRC Officers Hadley and Brown, Officer Hadley argued that the income should be declared in the entities that had received these monies. In these circumstances they submitted the initial £3 million should be reflected in the accounts for Nower. 116. They submitted that Mr Looney’s accountant (Mr Fonseka) produced the accounts for the years ended 31.12.2009 and 31.12.2010 in respect of Nower, which incorporated the Trafigura income (Set out below). NOWER INC Y/E 31.12 2009 Y/E 31.12.2010 Turnover- Trafigura 3,000,000 Turnover – Other Income 303,274 155,099 Total Turnover 3,303,274 155,099 Administration Costs 2,593,488 45,823 Taxable Profit 709,786 109,276 117. As set out in paragraphs above, they submitted that HMRC Officer Mousely incorrectly removed the income and the related expenses from KLCL and transferred these to KLA. The result of this was that the taxable income of KLCL was reduced accordingly. Officer Hadley made the corresponding reductions in the Corporation Tax due for the APE 30 April 2011. 118. On 14 October 2015, they submitted that Officer Hadley unilaterally reversed his decision stating: “(1) You have knowingly submitted accounts that you consider to be incorrect. (2) By accepting your amendments there should be a corresponding knock-on effect to the partnership accounts, but you do not accept this. (3) We do not accept amendments to accounts which are the subject of an ongoing enquiry. In the circumstances the Corporation Tax remains due & payable. 119. They submit that Officer Hadley had totally ignored the fact that it was Officer Mousley who made these amendments to the accounts of KLCL. In the circumstances the accounts submitted by Mr Looney in respect of KLCL for the accounting period ending 30 April 2011 should remain unaltered. This results in the accounts constructed by Officer Mousley in respect of the accounting period ending 31 December 2009 should be reversed. 120. They submitted that Officer Hadley reversed the amendments made by Officer Mousely on the 20 December 2013. The result of this is that the corresponding amendment to the partnership accounts of KLA for the year ending 31 December 2009 are reduced to nil, as HMRC cannot insist that the same income be declared in two different entities. 121. They submit that Officer Hadley has refused to change his stance on this matter. The only reasonable conclusion is that the Trafigura income should remain in KLCL, where it was initially declared by Mr Looney. Trafigura Payment termination of £1 million 122. Mr Fonseka and Mr Singh submitted that Trafigura terminated the contract unilaterally and paid Mr Looney £1 million as compensation. Despite HMRC’s claims that this payment is taxable, Mr Looney’s case was that this payment is not taxable. 123. They submitted that the compensation payment was paid by Trafigura to Nower. They relied upon the case of O’Dwyer v Irish Exporters and Importers Limited [1943] IR 176 in which the Court held that compensation paid to the parent company of a company that suffered loss as a result of the actions of the Ministry of Agriculture was not taxable in the hands of the parent company. 124. They relied upon the principles set out in (a) the case of Evans Medical Supplies Ltd v Morarity and (b) the provisions of the Business Income Manual published by HMRC. 125. It was submitted that a lump sum received by a UK company for disclosing certain secret processes and other information to the Burmese Government was held to be a capital receipt in Evans Medical Supplies Ltd v Moriarty [1957] 37 TC 540 . This was submitted to be precisely the case in this appeal, where Trafigura were effectively compensating the Appellant for the use of his secret processes used in management performance recording. 126. They invited the Tribunal to apply the decision of the House of Lords in Evans Medicals Supplies Ltd v Moriarty where their Lordships stated: “ 'The effect of the contract was this: the company parted with its secret processes to the Burmese Government for ever, but upon the terms that the Government would not without the consent of the company impart such information to another, such consent not to be unreasonably withheld. The company remained at liberty to carry on its wholesale trade there, and, in legal theory, could no doubt have thereafter set up a competing factory in Burma. In addition, the company was to supply technical data, drawings, designs and plans for the erection of a factory and of the installation of machinery appropriate and suitable for the manfacture of these known pharmaceutical products and for their processing by these secret processes… .” 127. They relied on the following passages from the speeches: “ As appears from the passage I have read, in his view the company was' parting for ever with an asset. So again, he says: 'the company was, in fact, parting for ever with its secret information in its methods of preparation, packing and preservation... it was parting for ever with part of a valuable asset, and was doing so to enable an entirely new and competing industry to be set up there. That industry established by the skill and know-how of the company, could embark on an export trade which could compete with the company’s own products in other countries. In that sense the company was dissipating its asset, and it must be remembered that a secret process once communicated to another is in jeopardy; if it gets into the wrong hands, the grantor has no protection.” 128. They submit that the Master of the Rolls, Lord Evershed, set out the test as being: “ But the right to treat the Pounds 100,000 as capital must be limited to the extent to which it was referable to secret processes properly so called; that is, to formulae or secret processes truly analogous to the subject-matter of letters patent, copyright and things of that kind. It would not, for example, include the sort of information recorded in the plans which were shown to us illustrating the way in which the company would lay out the factory and dispose the apparatus therein. Plans and designs of that kind only represent, I think, the recorded fruit of practical manufacturing or operational experience. “ 129. Lord Justice Birkett stated as follows: “ The position then is, in my opinion, that at the date of the agreement the company was in possession of certain secret knowledge relating to pharmaceutical products; that that knowledge constituted property of a capital nature; that under the agreement it bound itself to communicate that knowledge to the Burmese Government; and that the obligation which the company so incurred constituted a part, at least of the consideration for which the company was to receive Pounds 100,000…. The value of the processes to the company lay in the fact that they were secret; and those in question ceased to be secret from the moment when they were communicated to the Burmese Government pledged itself not to divulge the information to anyone else without the company’s consent; but they became possessed of the information themselves and they would possess it for ever. ” 130. They submitted the facts of the instant appeal were on all fours with Evans . The £1 million payment from Trafigura was paid to Mr Looney for loss of a secret process that he had spent many years inventing, preparing and honing as a highly effective business tool. The loss of his Performance Management System was akin to the loss of an asset and the payment was made for the loss of that proprietary secret process. 131. Further, they relied on HMRC’s Business Income Manual (under the heading “Specific receipts: compensation and damages: capital or revenue: summary ”) which states that an amount received by a trader in consideration of the cessation, in whole or in part, of his business may be a capital receipt. 132. It was submitted that if Mr Looney (or his company for that matter) were to be taxed on two years of £3 million income, he would have significantly more that the £500,000 per remaining contract year no matter how highly he was taxed. In other words, HMRC cannot logically state that he should be taxed as this compensation is a fair reflection of lost actual or potential earnings; a key element to the ‘ Gourley ’ Principal applied in the British Transport Case. 133. In conclusion they submitted that in Mr Looney’s case the £1 million termination payment was a fraction of the lost contract value and was more accurately to be considered a form of tax-free capital resource to be used to sustain the business . They submitted that the only logical and legal conclusion remained that the compensation was not subject to tax. Discussion and Decision on the Partnership appeal The two issues in dispute 134. HMRC contend that for the accounting period ended 31 December 2009 the turnover figure for the KLA Partnership should be £4,000,000. This is based on the income received from Trafigura between January and November 2009 (£3 million in payments received by Nower Inc in February and August 2009 and £1 million received by Mr Looney / KLA in October 2009). HMRC submit they properly amended and revised the KLA partnership return for 2009-2010 to include this sum as turnover and hence calculate profits which were subject to income tax. The first issue – are payments made by Trafigura attributable as income and turnover to the KLA Partnership or the company KLCL or any other entity 135. The burden of proof is upon the Appellant partnership to demonstrate that HMRC wrongly revised the partnership accounts to include the payment made by Trafigura as income and turnover and demonstrate that it was attributable to the company KLCL. 136. The contract pursuant to which Trafigura made the payments, being the letter of agreement dated 14 January 2009, was made between Kieran Looney & Associates (the partnership) and Trafigura Beheer BV. 137. Clause 1.12 of that contract states: “The terms of this agreement including the attachments set out the entire agreement and understanding of KLA and Trafigura Ltd in relation to the subject matter, to the exclusion of any other terms or representations, and may not be varied except in writing signed by a duly authorised signatory on behalf of each party. They are personal to KLA and Trafigura Ltd and may not be assigned or transferred in whole or part by either of them”. 138. There is no dispute between the parties but that there was no written assignment, transfer or variation of the parties to the contract. There was nothing in writing from either party, let alone any agreement, assigning, varying, novating or substituting the KLA partnership with any other entity such as KLCL or Nower Inc. There is no dispute that clause 1.12, requiring a written variation to the contract, was not satisfied or attempted to be engaged by either party to the contract. The Supreme Court judgment in Rock Advertising is binding authority that clause 1.12 of the contract is and was effective. 139. For the reasons set out above the Tribunal has not accepted Mr Looney’s oral evidence that a novation, variation or assignment took place. He provided no detailed evidence of any attempt to vary the contract orally with Trafigura let alone any evidence of written variation. He gave no evidence of the time, date or reason or any independent contemporaneous evidence of there being a change of contracting party from KLA to KLCL (or Nower Inc). 140. Indeed, on 17 December 2009 Particulars of Claim were filed on Mr Looney’s behalf in his personal name suing Trafigura for repudiatory breach of contract and damages alleging the contract was unlawfully terminated. Mr Looney conducted litigation up to February 2011 as the named Claimant on behalf of himself and / or KLA claiming damages for breach of that contract. The judgment of Mr Justice Newey provides further persuasive, if not binding, support for the fact that the KLA partnership, or Mr Looney, was the proper party to the contract. 141. Further, Mr Looney at the subsequent meeting with HMRC in 23 June 2011 accepted that the contract was between Trafigura and himself (or at least the partnership) and not the limited company, KLCL. KLCL had no right to sue because there was no privity of contract between itself and Trafigura. There is no written or credible or reliable evidence even that there was any assignment of the benefit of the contract from the partnership to the company. The income is proper to the partnership and not the company. 142. The Tribunal has not accepted Mr Looney’s evidence that Trafigura paid the termination fee to the KLA partnership in October 2009 by mistake. Further and in any event, the recipient of the payment does not determine the identity of a contracting party. 143. Even if Mr Looney or KLA had asked Trafigura to pay sums to different entities on his / their behalf that does not mean the contract would be with those entities. All the payments made by Trafigura went to the KLA partnership or to Nower Inc (although not initially declared). No payments were made to KLCL. KLCL did not receive any payment on the contract, nor declare any payment under the contract in the company’s 2009-2010 or 2010-2011 accounts as originally presented. This is unsurprising as it cannot agreed to have receive monies - KLCL was not a contracting party and not in existence at the time the contract was formed in January 2009. 144. Mr Looney’s company, KLCL, did not exist when the contract was entered into in January 2009. The company was incorporated in April 2009 with Mr Looney as the sole shareholder and director. KLCL could not make the original agreement with Trafigura and there was no subsequent variation, substitution, novation or assignment effective to transfer the benefit of the contract to KLCL. 145. At the time KLCL was incorporated, 9 April 2009, the majority of money paid pursuant to the contract (around £2.3 million) had already been paid by Trafigura. 146. The Tribunal is satisfied that the sums paid by Trafigura to the Nower Inc and KLA bank accounts was attributable and due to the KLA Partnership and no other entity, particularly not the companies KLCL or Nower Inc. 147. The Tribunal notes that on 19 August 2016 Mr Fonseka agreed to HMRC proposal that £3 million of the Trafigura income would fall within the partnership for the year ended 31 December 2009 but not the £1 million payment which was disputed as being taxable. However, the Tribunal places no weight on this concession as it was subsequently withdrawn by Mr Fonseka. 148. The Tribunal is satisfied that the partnership was entitled to and received payment under the contract between Trafigura and Kieran Looney & Associates. The payments made by Trafigura are income and turnover of the partnership under the terms of the contract between Trafigura and Kieran Looney & Associates. Mr Looney received all of the payments as his share of the KLA Partnership profits. Neither HMRC nor the Tribunal were provided with any copy of any partnership agreement between Mr Looney and Reality Coaching Limited nor any evidence as to any profit-sharing arrangement which could demonstrate that profits would be shared on any other basis. 149. The Tribunal is satisfied on balance that HMRC’s decision to revise the partnership accounts to include as turnover income from Trafigura was lawful and that the profit consequent on the turnover was subject to income tax. 150. Mr Looney has not discharged the burden on proof upon him to demonstrate that payments were properly attributable to KLCL rather than the KLA partnership. Mr Looney did not demonstrate as a matter of fact and law why the sums should be included in the company accounts and should not appear in partnership accounts based on general accountancy practice for the purpose of sections 25 and 849 ITOIA. 151. There is no dispute as to the expenses allowed by HMRC in computing the profits of the Partnership for 2009-2010. The expenses were based on those attributable to the income from Trafigura which Mr Looney had included in the company accounts of Kieran Looney & Co Ltd. On 2 October 2015 HMRC revised the allowable amounts following an analysis of credit card payments and Mr Fonseka wrote to HMRC on 19 August 2016 agreeing the computation of allowable expenses. The second issue – was the £1 million termination payment a revenue receipt and trading income or a capital receipt or some other type of compensation and non-taxable? 152. Clause 1.10 of the Contract provided: "

"Written notice must be received by KLA on or before 1st November 2009 Non - refundable deposit + £1,000,000 early termination fee to be paid to KLA within fourteen days of notification" …………………………… 154. The Contract also incorporated a manuscript amendment at the end of clause 1.10: "

"[Y]ou are talking here about a delivery of what I would call 'soft skills' which is performance management, it's very hard to quantify. If things don't go as planned it's very hard to apportion blame, in my mind, to say, well, is it Trafigura was not committed enough? Is it Kieran Looney was too difficult? What is it? Therefore it's a lot simpler, to avoid any argument, to have something that is very transparent and that's how I read the break clause as a very transparent mechanism which said what was in the contract"; iii) Mr Collings made the point that Trafigura had invoked clause 1.10 before Mr Looney had become entitled to even half of the £9 million fees for which the contract provided, despite the fact that (as Mr Collings submitted) what Trafigura received under the contract was "hugely front-loaded"

“In consideration of the payment to Evans Medical by the Government of the Union of Burma of the capital sum of £100,000 (One hundred thousand pounds sterling) payable in the United Kingdom free from any deduction whatsoever (A) Evans Medical will provide and make available to the Government of the Union of Burma all drawings designs and plans and technical and other data and ‘ know-how ’ necessary for the establishment erection and installation of the factory and the commencement of production thereat of the pharmaceutical and other products mentioned in the Schedule hereto……..” 165. The contract terms in Evans could not be further from those provided under the termination clause of KLA’s letter of agreement. Clause 1.10 did not provide for KLA to part with a capital asset (the KLA program or any other intellectual property or right to a secret process) and receive in return a capital sum. The transaction was not a parting by KLA with part of its property for a purchase price, but instead a method of trading by which KLA acquired a particular sum of money as part of the profits and gains of its trade. 166. The Tribunal is satisfied that an amount received by a trader in consideration of the cancellation, breach or variation of a trading contract constitutes a revenue receipt. The termination fee was in effect an early release compensation payment made when Trafigura opted to end the contract early. It was consideration for the cancellation of a trading contract and a trading receipt of revenue, not a capital payment nor any other type of non-taxable compensation. Discovery amendment to the partnership return 167. The burden of proof was upon HMRC to demonstrate that they had made a discovery and were entitled to amend the partnership return for the tax year 2009-2010 under section 30B(1)(a) TMA 1970 in line with Burgess & Brimheath Developments Limited and HMRC [2015] UKUT 578 TCC While this issue was agreed between the parties, the Tribunal records its reasons for being satisfied that HMRC had discovered that any profits which ought to have been included in the partnership’s statement had not been so included. 168. On 26 May 2011 HMRC opened enquiries for 2009-2010 into the self-assessment return of Mr Kieran Looney and the company tax return of Kieran Looney & Co Ltd, the primary focus of which was the income from Trafigura. 169. On 6 February 2013 Officer Margaret Mousley of HMRC’s Specialist Investigations Directorate undertook a review of the enquiries that had been opened on 26 May 2011. Officer Mousley identified a number of matters which required clarification including the income from Trafigura and further expenses claims for Kieran Looney & Associates. 170. On 18 April 2013, HMRC met Mr Nimal Fonseka of Fonseka & Co Ltd, the agent representing Mr Looney. The notes of that meeting state that the income from Trafigura was appropriate to Kieran Looney & Associates as opposed to Kieran Looney & Co Ltd and Mr Fonseka would re-write the accounts. 171. At the meeting on 18 April 2013 other issues were also discussed including the VAT Return for quarters ending 12/08 and 06/08 and the expenses claimed in the amended accounts of Kieran Looney & Associates for 2008. 172. On 7 August 2013 HMRC wrote to Fonseka & Co Ltd. In that letter Officer Mousley stated that she was unable to reconcile the amounts included in the revised 2008 accounts that had been submitted and set out what she believed to be the correct figures. Officer Mousley stated that as no supporting documentation or breakdown had been provided to support the revised 2009 accounts, she proposed that the 2009 accounts be based solely on the income and expenses arising from Trafigura and which had been accounted for in the accounts of Kieran Looney & Co Ltd for Accounts Period Ended 30 April 2011. 173. No agreement to HMRC’s proposals of 7 August 2013 were received. 174. On 2 September 2013 Fonseka & Co Ltd advised Officer Mousley that they did not agree with her computations for the years ended 31 December 2008 and 31 December 2009. 175. On 20 December 2013 Officer Mousley wrote to Fonseka & Co Ltd setting out the amounts she proposed to assess for 2008-2009 and 2009-2010. 176. On 2 January 2014 Officer Mousley advised the Nominated Partner of Kieran Looney & Associates that she had amended the Kieran Looney & Associates Partnership Return for the period 01 January 2009 to 31 December 2009 (tax year 2009-2010). The amendment was made pursuant to section 30B(1) TMA 1970. It is this amendment which is subject to appeal. 177. On 6 January 2014, Officer Mousley advised the Nominated Partner of Kieran Looney & Associates that she had amended the Kieran Looney & Associates Partnership Return for the period 01 January 2008 to 31 December 2008. The amendment was made under section 30B(1) TMA 1970. The appeal in relation to the amendment for this period is no longer before the Tribunal. 178. No partnership enquiry for 2009-2010 having been opened by HMRC under section 12AC of the TMA 1970, an amendment to the partnership return of Kieran Looney & Associates for 2009-2010 under section 30B(1) TMA 1970 may only be made if section 30B(4) is satisfied. 179. The Tribunal is satisfied that section 30B(4) TMA 1970 is satisfied because HMRC have established that one of the conditions at section 30B(5) or 30B(6) has been met. 180. The Tribunal is satisfied Mr Looney’s actions for 2009-2010 were “careless” for the purposes of section 30B(5) TMA 1970. The £4 million income from Trafigura arose as a result of a contract between Kieran Looney & Associates and Trafigura. Mr Looney failed to account for this income in the legal entity that was entitled to payment, KLA. Mr Looney attributed the income through his company, Kieran Looney & Co Ltd that had no entitlement to payment and even then only declared £3 million in income and did not include the £1 million termination payment. 181. Further, section 30B(6)(a) is engaged. At the time an officer of the Board ceased to be entitled to give notice of his intention to enquire into the representative partner’s partnership return, the officer could not have been reasonably expected, on the basis of the information made available to him before that time, to be aware of the situation in section 30B(1)(b). This was discovered by virtue of the VAT enquiry and the enquiries into the self-assessment of Kieran Looney and the company return of Kieran Looney & Co Ltd for 2009-2010. 182. It was only because of the enquiry into the personal return of Mr Looney and the company return of Kieran Looney and Co Ltd that HMRC became aware and discovered the material facts it relied upon to amend the partnership return of Kieran Looney & Associates. 183. The Tribunal is satisfied that once Officer Mousley had identified that the income arising from Trafigura had not been accounted for in the partnership of Kieran Looney & Associates, section 30B(1)(a) TMA 1970 was met in that the income from Trafigura was not included in the partnership statement when it should have been and this was sufficient for HMRC to have made a discovery. 184. In Revenue & Customs Commissioners v Charlton & Ors [2012] UKUT 770 (TCC) , the Tribunal emphasised the following: “At one point an officer is not of the view that there is an insufficiency such that an assessment ought to be raised, and at another he is of that view. That is the only threshold that has to be crossed” [28]. 185. The Tribunal is satisfied that the conditions of Section 30B TMA 1970 are satisfied and that HMRC was entitled to amend the partnership return for the year 2009-2010. Conclusion on the Partnership Appeal 186. The Tribunal is satisfied that the revised Partnership profits and tax due for the year 2009-2010, based on the accounts for the calendar year 1 January to 31 December 2009, are as revised by HMRC and shown in the table below: Accounting period 01/01/2009 to 31/12/2009 Original return HMRC revised Turnover Nil 4,000,000 Cost of Sales Nil Expenses 87,281 Admin Costs 2,443,257 Net Profit Nil 1,469,462 Tax due (refund) £17.00 597,417.67 187. The £3,000,000 payment from Trafigura is taxable income of the partnership. The £1,000,000 termination payment from Trafigura was a revenue receipt from trade and is also taxable income of the partnership. The turnover of the partnership in the relevant year was £4 million. 188. The cost of sales, allowable expenses and resulting net profits as calculated by HMRC are confirmed: Tax Year 2009/2010 Turnover £4,000,000.00 Cost of Sales £2,443,257.00 Expenses £87,281.00 Net Profit £1,469,462.00 189. The partnership appeal is dismissed. The decision of HMRC revising and amending the partnership return of Kieran Looney & Associates for 2009-2010 is confirmed. The Capital Gains Tax Appeal 190. The Capital Gains Tax appeal is an appeal against HMRC’s closure notice and amendment to Mr Looney’s self-assessment tax return for the year 2011-12 in respect of Capital Gains Tax (TC/2016/02331). Facts 191. The Tribunal makes the following factual findings on the balance of probabilities having considered the witness statements and oral evidence of the witnesses, Mr Looney, Mr Nimal Fonseka and HMRC Officer Hadley, indicating where it rejects any of the evidence given. 192. On 17 September 2012 Mr Looney’s self-assessment tax return for the year 2011-2012 was submitted (the first return). No capital gain was declared on that return. 193. On 5 February 2013 Mr Looney submitted an amended self-assessment return for 2011-2012 (the second return) which included a capital gain of £1,127,551.00. The gain was said to be based upon the purchase and sale of Mr Looney’s interest in property or land in the Caribbean. 194. On 11 March 2013 Mr Fonseka sent Officer Mousley copies of statements from Mr Looney’s Allied Irish Bank (AIB) GB, UK Bank account with Private Banking at Berkley Square, London to show the amounts sent to the Caribbean. 195. The statements were accompanied by three letters from AIB. The first evidenced a payment of $80,000 USD (£40,526.33) to Canounan Reality Ltd (sic) on 31 May 2007. The second letter evidenced a payment of $1,200,000 (£591,153) to Canouan Resort Development (sic) on 13 July 2007. The third letter evidence a payment of $3,079,000 to Canounan Resorts Development (sic) on 22 October 2007. 196. Thus, a total payment of $4,359,000 USD (£2,139,514.79 at the various exchange rates then prevailing) was made by Mr Looney to bank accounts of limited companies with similar names. Canouan is an island within St Vincent and the Grenadines in the Caribbean. 197. On 15 March 2013 Mr Looney submitted a further amended self-assessment return (the third return) for 2011-2012 showing half of the capital gain previously declared ie £563,775.5. This was on the basis that the capital gain chargeable on the sale of Mr Looney’s interest in the Caribbean property or land was to be attributed jointly to him and Mrs Looney. 198. On 18 April 2013 Mr Fonseka attended a meeting with HMRC. 199. On 2 July 2013 HMRC opened an enquiry into the return under section 9A of the TMA 1970. 200. On 17 October 2013 Mr Looney’s agent, Mr Fonseka wrote re ‘Mr KJ & Mrs SA Looney’ stating: “The expenses claimed in respect of the purchase and sale of the property related to the costs incurred by my client’s travelling, subsistence and accommodation etc. My clients bought this property for development purposes. They intended to build a high spec holiday complex and sell it at a profit. Their plans were delayed due to a complicated legal dispute that Mr Looney had with a major client that went for over two years. This dispute ended in the High court in London. My clients were offered a very good price for the property in late 2011 by the owners of another property on the island, which they decide to accept in view of the worldwide recession. They are entitled to claim Entrepreneurs’ relief.” 201. Officer Nolan of HMRC phoned Mr Fonseka on 25 November 2013. Mr Fonseka said that when Mr Looney purchased the property the property was never legally passed on to Mr Looney, it was an error by Mr Looney’s solicitors which he was taking against. The Officer asked if Mr Looney received the proceeds on sale as the property was never in his name and Mr Fonseka said Mr Looney did and wanted to pay the correct taxes. 202. On 2 December 2013 Mr Fonseka submitted a computation of the capital gain on behalf of Mr & Mrs Looney based on the gain arising for each. This stated the date of disposal (of the property or land) was 1 February 2012. The letter listed the cost of the asset to be £1.344 million for each tax payer (therefore total cost of purchase being £2.688 million). The half share of the disposal proceeds was said to be £1,920,000 (therefore total proceeds from sale being £3.84 million). Less other incidentals costs, the gain was said to be £569,075 minus the annual relief of £10,600 meaning the chargeable gain was said to be £558,475. It was submitted that capital gains tax was payable on this chargeable gain at 10% based on entrepreneurs’ relief. 203. By this stage, there had been three different submissions to HMRC by Mr Fonseka on behalf of Mr Looney; that Mr Looney had incurred no chargeable gains for the tax year 2011-2012 (17 September 2012 return); that he had incurred a chargeable gain based upon his sole ownership of an interest in land or property in the Caribbean (5 February 2013 amended return); and that he had incurred a chargeable gain based upon joint ownership with his wife (15 March 2013 further amended return). There then occurred a further change of approach by Mr Fonseka on behalf of Mr Looney. 204. On 21 December 2013 Mr Fonseka wrote to HMRC stating “Mrs Looney had no connection with the property transaction.” and raised the question of Mr Looney’s ownership . 205. On 17 February 2014 Officer Nolan called Mr Fonseka. Mr Fonseka stated that Mr Looney bought the property in the Caribbean but his solicitors made a mistake with the contract and the property was never transferred to his name. Officer Nolan explained that Mr Looney would still be the beneficial owner as he received the proceeds and the Capital Gain would still be due on him as beneficial owner. Mr Fonseka accepted this and agreed Capital Gains tax was due on Mr Looney but that Entrepreneurs’ relief (ER) would be due as Mr Looney bought the property to do up and sell on at a profit so that ER was due. Officer Nolan told Mr Fonseka that he didn’t believe ER to be due as the property was not part of any business or trade. 206. On 18 February 2014 Mr Fonseka, on behalf of Mr Looney, submitted yet another amended self-assessment return for 2011-2012 (the fourth return) which again showed a half share of the capital gain from the sale of property. 207. On 10 April 2014 HMRC issued an Information Notice under Paragraph 1 of Schedule 36 to the Finance Act 2008. 208. In response to HMRC’s Information Notice, Mr Fonseka wrote on 14 April 2014 stating that his client had been advised there was no capital gain as the investment did not legally belong to him and a yet a further amended return dated 14 April 2014 (a fifth return) was submitted showing no capital gain. 209. In a covering letter Mr Fonseka stated: ‘My clients have been advised that there is no CGT liability as the investment did not legally belong to them.’ 210. On 9 May 2014 HMRC wrote to Mr Fonseka asking for evidence relating to the disposal that had prompted the original capital gain entries in Mr Looney’s return and evidence to confirm the advice that there was no capital gain. 211. On 11 June 2014 Mr Fonseka wrote to HMRC stating that Mr Looney had been informed that due to the unusual nature of the transactions they did not fall within the capital gains tax (CGT) regime. 212. On 15 July 2014 HMRC issued an Information Notice under Paragraph 1 of Schedule 36 to the Finance Act 2008 requesting a full capital gains computation, a breakdown of any costs or reliefs claimed and an explanation of why entrepreneurs’ relief was due. 213. On 21 July 2014 Mr Fonseka wrote to HMRC again stating that no CGT was due as the asset did not fall within the parameters of Capital Gains. 214. On 12 August 2014 HMRC wrote to Mr Fonseka advising that HMRC had an enquiry open into Mr & Mrs Looney’s self-assessment returns for 2011-2012 and asking for an explanation as to why a capital gain on the asset in question was originally declared and why the asset was now not considered to be a capital gain. HMRC again requested a full reply to HMRC’s letter of 9 May 2014 . 215. On 12 October 2014 Mr Fonseka replied to questions of HMRC dated 29 September 2014 stating: (1) The purchase of property (said to be at Waterside Development) was made by Mr Looney alone; (2) There was no available purchase or sale agreement as the purchase was not completed; (3) The acquisition cost (of £2,688,000) was met from Mr Looney’s own funds; and (4) The disposal proceeds (of £3,840,000) were paid to Mr Looney. 216. Mr Fonseka’s letter went on to state: ‘Due to the negligence of my client’s agents the property was not transferred to my client. My client had forfeited the monies he had paid up front for the property. In fact he was not able to sell or transfer the property as he did not own it. One of his close friends and business associates stepped in and bought the property from the original owners and although he had no obligation to do so, paid my client.’ 217. On 10 January 2015 Mr Fonseka stated the friend was “Mr Antonio Saladino” of Canouan Resort Development Ltd, Carnage Bay, Canouan Island, St Vincent & the Grenadines. 218. On 26 January 2015 Mr Fonseka provided copies of e-mail correspondence from Mr Looney and others with the Minerva Trust in 2011. Mr Fonseka stated that Minerva Trust failed to transfer the property to Mr Looney. 219. This correspondence evidences Mr Looney’s attempt to transfer his believed ownership of shares in Sandpiper Enterprises Ltd (which company owned the land in Canouan) to the SE (Sandpiper Enterprises) Trust, a trust to be administered by Minerva Financial Services Limited (Minerva Trust) in Jersey. 220. In an email exchange dated 26 May 2011 Paul Tyrell, a Trust Officer at Minerva Trust, emailed Mr Looney to say Minerva had been in correspondence with the administrators or the company BSI Trust Corporation (Bahamas) Ltd in relation to the outstanding issues with regard to Sandpiper Enterprises Ltd (the owner of the land in Canouan). 221. Mr Tyrell noted that that Canouan Resort Developments remained the shareholders of Sandpiper Enterprises Ltd (which in turn owned the land). His contact with the BSI Trust Corporation (Bahamas) Limited (“BSI”) confirmed that before they would be able to make any changes to the share ownership of Sandpiper Enterprises Ltd, they required clear instructions from the current beneficial owners informing them of the change in ownership with further instructions to make the necessary changes to the share register. Mr Tyrell asked Mr Looney to get in touch with his contact at BSI and ask them to instruct / confirm to BSI Trust that the SE (Sandpiper Enterprises) Trust holds the shares of Sandpiper Enterprises Ltd. 222. In an email titled ‘Re: Sandpiper Enterprises Ltd’ in reply to Mr Tyrell, Mr Looney stated: ‘I take it from your message that the current beneficial owners are myself and Sandra. The trust is not yet operable. Is this correct’. 223. Mr Tyrell replied by email to state that due to client confidentiality BSI would not confirm this. He stated that the trust was existing, the outstanding point was BSI, formerly Gottardo Trust Co Ltd, had never changed the share register and issuance of new shares to reflect the change of ownership to the trust. 224. In a letter dated 29 April 2012 Mr Fonseka had written to Derek Le Brun, director of Minerva Trust & Corporate Services Ltd regarding Mr Looney and the SE Trust. The letter stated that the SE (Sandpiper Enterprises) Trust was settled on 28 & 27 March 2008 by Mr and Mrs Looney. The sole trustee was the Minerva Trust Co Ltd. The beneficiaries of the trust were the settlors (Mr and Mrs Looney) and their children. 225. Mr Fonseka went on to state: ‘7) SE Trust received as the settled property for the trust, the shares of Sandpiper Enterprises Ltd, a Bahamian company administered by Gottardo Trust in the Bahamas. The shares were held by Gottardo’s nominee company and we understand that instructions were given by the settlors to transfer the share to the trustee on 28 March 2008. Sandpiper Enterprises owns a property in the Bahamas purchased on May/July/October 2007 for a consideration of US$4,359,000 (£2,139,264). The property was sold in June 2011 for a consideration of $1 million deposit and balance of $5 million in January 2012. The property was used by the family for vacation purposes only. 8) Canounan Resort Developments (CRD) were the shareholders of Sandpiper Enterprises Ltd (Bahamas company managed by Gottardo Trust Company) that owned the plot of land – e22. The necessary changes were never made to the share register as to the change of ownership. As such no nominee declaration or share certificate was ever received to confirm that the trustee was the beneficial owner of the share and not CRD.’ 226. On 10 March 2015 Officer Karen Russell of HMRC wrote to Mr Fonseka explaining that HMRC considered Mr Looney to be the beneficial owner of the asset and that he was liable to CGT on the disposal and included the resulting tax calculation. She referred to Mr Looney’s email dated 13 May 2011 to Paul Tyrell of Minerva Trust and Corporate Services in which Mr Looney stated: “I am considering the sale of one of my properties TM or SE trust”. 227. She stated the gain was included on Mr Looney’s 2011-2012 tax returns and in Mr Fonseka’s letter of 17 October 2013. She stated that in the subsequent telephone call and correspondence Mr Fonseka clearly stated that Mr Looney received the funds and incurred expenses in relation to the purchase and sale, which is unlikely if he did not own the property or have a reasonable expectation to benefit from the property and its future sale. She referred to section 21 of the Taxation of Chargeable Gains Act 1992 (TCGA 1992) on Assets and Disposals which provides: 21 Assets and disposals (1) All forms of property shall be assets for the purposes of this Act, whether situated in the United Kingdom or not, including— (a) options, debts and incorporeal property generally, and [(b) currency, with the exception (subject to express provision to the contrary) of sterling,] and (c) any form of property created by the person disposing of it, or otherwise coming to be owned without being acquired. 228. Officer Russell stated: ‘Mr Looney put into effect a series of transactions that whilst they were not executed correctly do not appear to have disadvantaged him as he retained the right to receive the proceeds of the sale. At no time have you claimed that the monies expended by your client and received by him were for anything other than acquisition and sale of the property. The right to the proceeds is an asset, Section 21 paragraph (1)(a) in defining assets includes incorporeal property generally, paragraph (1)(c) refers to assets “otherwise coming to be owned without being acquired”. 21. On 24 March 2015 Mr Fonseka wrote to HMRC stating that his client’s position was set out in previous correspondence and that it would be best if the matter was referred to the Tribunal. 229. On 1 April 2015 HMRC wrote to Mr Looney advising him that HMRC were unable to close the enquiry as enquiries into Mr Looney’s partnership income were continuing and that HMRC were amending Mr Looney’s 2011-2012 self-assessment return to include the whole gain arising on the disposal of the asset in question . 230. On 15 April 2015 Mr Fonseka appealed against the amendment on behalf of Mr Looney. 231. On 22 April 2015 HMRC wrote to Mr Fonseka seeking clarification of the grounds of appeal. 232. On 19 May 2015 HMRC issued a view of the matter letter to Mr Looney and offered a statutory review of HMRC’s decision. 233. On 26 May 2015 Mr Fonseka requested a review. 234. On 16 July 2015 HMRC issued a closure notice under section 28A(1) & (2) TMA 1970 in relation to Mr Looney’s self-assessment tax return for the year ended 5 April 2012. As previously indicated in the letter of 1 April 2015 HMRC’s decision was to increase the taxable Capital Gain arising from the sale of the asset (said to be property at Waterside development) from £547,875 to £1,127,551 and to disallow the claim for entrepreneurs’ relief. This amendment to the return resulted in a requirement for Mr Looney to pay £320,401.88 in tax. 235. On 20 July 2015 Mr Fonseka confirmed that a statutory review of the decision was required. 236. On 31 July 2015 HMRC wrote to Mr Looney confirming receipt of the appeal against the capital gain for 2011-2012 and indicating that the decision would be reviewed by an officer of HMRC who had not previously been involved in the case. 237. On 5 August 2015 Mr Fonseka wrote to HMRC informing them that Mr Dermot Desmond paid the money to Mr Looney and Mr Saladino was the owner of the property and he did not make any payment to Mr Looney. Mr Fonseka stated that the transaction was a gift and as such not liable to CGT. 238. The Review Officer, Mr Charles Agg, sought further information from Mr Fonseka as part of the review process. During this exchange of correspondence it was clarified that the disposal was not of a property as previously thought but shares in a company (Sandpiper Enterprises Ltd) that owned land. 239. Officer Agg in his letter dated 27 August 2015 sought clarification from Mr Fonseka of his understanding that the asset in question was not the Waterside development property, Canouan, West Indies but the ownership of the shares in the company called Sandpiper Enterprises Ltd (which owned land). He sought clarification that the shares in Sandpiper were supposedly acquired by Mr Looney from BSI Trust Corporation (Bahamas) Ltd (formerly Gottardo Trust Co Ltd) and settled by Mr Looney to the SE (Sandpiper Enterprises) Trust and that during 2011, it transpired that the documentation required to register the changes in ownership of the shares had not been produced. 240. On 28 September 2015 HMRC Review officer Agg upheld the decision that the gain was correctly assessable on Mr Looney for the purposes of CGT and entrepreneurs’ relief was not due. 241. On 2 October 2015 Mr Fonseka notified HMRC of a formal appeal against the decision stating that HMRC had failed to pay any regard to the evidence placed before them that Mr Looney did not at any time become the legal or beneficial owner of the shares in Sandpiper Enterprises Ltd. Mr Fonseka stated Mr Looney and his family never went to the land. The land was, at the time, a completely undeveloped plot of land. Mr Fonseka stated that HMRC had failed to produce any legal authority in support of the position that Mr Looney became the beneficial owner of she shares. 242. On 9 October 2015 HMRC Review Officer Agg clarified his view on the use of the property as stated in his review conclusion letter. Namely he pointed to the inconsistency between the letter sent by Mr Fonseka to Mr Le Brun of Minerva Trust and Corporate Services Ltd of 29 April 2012 in which Mr Fonseka had said ‘The property was used by the family for vacation purposes only.’ 243. On 14 October 2015 Mr Fonseka wrote to HMRC stating that “Mr Looney and his family visited the island and stayed at the resort hotel there in order to view the land they erroneously thought they owned”. 244. On 30 November 2015 Mr Fonseka appealed to the Tribunal on behalf of Mr Looney in respect of the amendment to self-assessment return for 2011-2012 charging CGT. Mr Fonseka’s evidence on the Capital Gains tax appeal 245. Mr Fonseka accepted that he made mistakes in dealing with Mr Looney’s tax affairs in relation to CGT. 246. Mr Fonseka stated that he now understood that in 2008 the Appellant, Mr Looney, entered into a transaction to buy a piece of land – Plot e22 in the Canouan Resort Development, Carnage Bay, Canouan Island, St Vincent & the Grenadines. Mr Looney paid the owner - Mr Antonio Saladino (Mr Saladino) - £2,688,000 for the shares in a company – Sandpiper Enterprises Ltd (Sandpiper) – which owned this plot. 247. He stated that Mr Looney instructed Minerva Trust & Corporate Services Ltd (Minerva) of St Helier, Jersey, to set up a trust - SE Trust- the beneficiaries of which were the Appellant, his wife and children and to ensure that the shares in Sandpiper were transferred to this trust. Mr Looney paid Minerva for these services. Mr Looney believed that he owned (through the SE Trust) this plot of land. In fact, he even included this property in his statement of Assets and Liabilities submitted to Mr Sherrin of the Specialist Investigation Department of HMRC. 248. Mr Fonseka stated that Mr Looney, the Appellant spent most of his time after the end of the case against Trafigura (in February 2011) abroad prospecting for new clients. He kept in touch with Mr Fonseka by telephone, which led to certain confusion. In 2011 Mr Looney informed Mr Fonseka that he intended to sell Plot e22 as he had financial problems due to the costs he had incurred in the Trafigura case. 249. In 2012, Mr Looney had a conversation with Mr Fonseka stating that he had obtained £3,840,000 and that he had settled his legal costs. Mr Fonseka assumed that these monies were the proceeds from the sale of Plot e22 and amended the Appellant’s and his wife’s (Sandra Looney’s) tax returns for 2011-2012 to include a CGT computation for each. The asset was thought by Mr Fonseka to be a property at Waterside Development, Canouan, West Indies. The CGT Computation for each spouse was set out as follows- £ Disposal Proceeds ($2,500,000 @ 1.302) 1,920,000 Incidental costs of disposal 2,846 Net disposal proceeds 1,917,154 Cost ($1,750,000 @1.302) 1,344,000 Incidental costs of acquisition 4,079 Total Costs 1,348,079 Gain 569,075 Annual exempt amount 10,600 Taxable Gain 558,475 CGT @ 10%- (Claiming- Entrepreneurs Relief) 55,848 250. As Officer Nolan was raising queries on the CGT computations, Mr Fonseka decided to allocate the entire Capital Gain declared to Mr Looney as Mr Looney did not want Mrs Sandra Looney to get embroiled in a tax enquiry. The 2011-2012 tax returns were re-amended accordingly. When it transpired that there had been no sale of the asset, as it did not exist, Mr Fonseka withdrew the capital gain declared on Mr Looney’s 2011-2012 tax return. 251. On 10 March 2015 Officer Karen Russell took over the enquiry from Officer Nolan. As no progress was made, Mr Looney requested Officer Russell to submit the file to a higher officer for review. The file was taken over by Officer C W Agg. Officer Agg made his decision on 28 September 2015. On 2 October 2015 Mr Looney made a formal appeal against the decision reached by Review Officer Agg by submitting an appeal to the Tax Tribunal. 252. HMRC did not cross examine or challenge Mr Fonseka’s evidence that he had operated under a mistaken belief that Mr Looney told him that monies received in 2012 were from the sale of the asset. Mr Fonseka stated he had simply been confused by what Mr Looney had told him on the phone and assumed he had been told the money received was from the sale of the property. Therefore, Mr Fonseka, when submitting returns and correspondence on behalf of Mr Looney suggesting that Mr Looney had received large sums of money and a chargeable gain in relation to the disposition of his interest in the shares or land in the Caribbean had done so on the basis of a mistaken assumption or belief. 253. Given that Mr Fonseka’s evidence was not challenged in cross examination, the Tribunal is bound to accept the following. Mr Fonseka was not acting on the direct instructions of Mr Looney in submitting returns and letters to HMRC which suggested, as Mr Fonseka thought or assumed without instructions , that Mr Looney and/or his wife had received money and profited from the sale of the interest in the shares or land and therefore made chargeable gains. Documents provided by Mr Looney during the course of the hearing 254. During the course of the hearing the Tribunal requested Mr Looney provide certain documents. Mr Looney assisted and did so. 255. Mr Looney provided a copy of a Share Purchase Agreement which HMRC accepted they may have seen before but was not included in the hearing bundles. The Share Purchase Agreement was dated 12 July 2007 between Kieran Looney and Sandra Looney (“Buyer”) and Canouan Resorts Development Ltd (“Seller”). 256. The “Landco” was identified to be Sandpiper Enterprises Ltd, a company incorporated in the Commonwealth of the Bahamas with registered office at Gottardo Trust Company Limited, Bahamas. 257. The “Estate Lot” was defined to be the real property of approximately 3.2 acres identified as Lot E22 at Schedule A to the agreement – a plot of land on Canouan Island, St Vincent and the Grenadines in the Caribbean. 258. By virtue of Article 2.2 the Seller (Canouan Resorts Development Ltd) agreed it ‘shall sell assign, transfer, convey bargain, grant and deliver to Buyer (Mr and Mrs Looney) and Buyer shall purchase and obtain from Seller, all on the terms and condition hereafter set forth all right, title and interest in and to all of the Landco (Sandpiper Enterprises Ltd) Shares.’ 259. Article 2.3 provided that the aggregate purchase price for the sale of the Landco shares to Mr and Mrs Looney was to be USD $4.375 million. This was to be paid as an initial payment of USD $80,000, thereafter USD $1.2 million was to be paid by Mr and Mrs Looney on signing of the Share Purchase Agreement and the balance of the purchase price (USD $3,095,000) to be paid at the closing by wire transfer of immediately available funds. 260. The Share Purchase Agreement also provided at Article 3.2 paragraph (a)(5) that at the closing the seller (Canouan Resorts Development Ltd) would deliver the share certificates representing the Landco (Sandpiper Enterprises Ltd) shares to Mr and Mrs Looney duly endorsed for transfer or evidence that the Landco shares had been deposited on the Looneys’ bank account as per their instructions. 261. The Share Purchase Agreement was signed by both Mr and Mrs Looney dated July 2007, albeit the copy provided to the Tribunal named Achille Pastor-Ris and Katya Marchetti, President & CEO as signatories on behalf of the seller (Canouan Realty Ltd, a Bahamian Company). The copy of the agreement provided to the Tribunal did not include any signatures on behalf of the seller. 262. The Tribunal was also provided with an earlier reservation agreement dated 30 May 2007 in regards to the same Estate Lot E22 providing for the deposit of USD $80,000 and signed by Mr Looney as proposed Purchaser and Achillo Pastor-Ris as President and CEO of Canouan Realty Ltd. 263. The Tribunal was further provided with an earlier Lots sale and purchase agreement whereby Mr and Mrs Looney were to purchase the same plot - Estate Lot E 22 – directly (without the mechanism of buying shares in the Landco which owned the land) for a sum of USD $4 million. This agreement was signed by the Looneys and Achille Pastor-Ris for Canouan Realty Ltd. It is apparent that this agreement was not proceeded with so did not evidence the agreement or transaction that was completed. 264. Mr Looney also provided a copy of the bank statement for the US Dollar current account of Nower Inc at the PKF bank in Lugano Switzerland. The bank statement is dated between 1 January 2012 and 31 March 2012 and reveals a credit of USD $5 million received on 17 January 2012 from Orchestra Holdings Ltd. Mr Looney accepted in evidence, as set out below, that this payment was made from Dermot Desmond directly to him but the transfer between companies was simply the mechanism in which the claimed gift was effected. Mr Looney’s evidence on the Capital Gains Tax appeal 265. Mr Looney gave evidence and was cross examined. He stated that HMRC had misunderstood the position in relation to the plot of land in Canouan, St Vincent and the Grenadines. HMRC had alleged that Mr Looney had received £3,840,000 from Dermot Desmond “in respect of the Asset”

“(1) All forms of property shall be assets for the purposes of this Act, whether situated in the UK or not, including – (a) Options, debts & incorporeal property generally, (b) currency with the exception of sterling, and (c) any form of property created by the person disposing of it, or otherwise coming to be owned without being acquired.” 372. They submitted that the Appellant, in 2008, paid £2,689,000 for the shares in Sandpiper Enterprises Ltd, which owned a plot of bare land-e22-in Canouan, St Vincent’s & the Grenadines. Due to the negligence of his agents – Minerva - these shares were not transferred to the SE Trust , nor anyone else connected to the Appellant . 373. They submitted that the Appellant was now, not the legal owner of these shares nor did he have a beneficial interest in any form, in these shares. He did not possess a side letter or any other communication that he could rely upon to convince a potential buyer of the shares in Sandpiper that he had the capacity or the ability to effect a legal transfer of these shares. 374. In short, the Appellant did not own these shares and was unable to receive the proceeds of a sale of these shares. As explained by Mr Looney, he received a gift from an old friend of his, Mr Dermot Desmond, who is a multi-billionaire and a fellow Irishman. This transaction did not fall into the Capital Gains Tax regime. 375. They relied on the case of Simpson v John Reynolds & Co [1975] 1 WLR 617 in which the Court of Appeal decided that where a payment made to a taxpayer by a third party was “unsolicited and unexpected” the payment was a gift and was not taxable. In that case an insurance broker provided brokerage services to one of its important clients for a number of years. The client decided to move its business elsewhere and in recognition to the insurance broker made a payment of £5,000 by annual instalments of £1,000. The £5,000 was not deemed to be a trading receipt, because it was in recognition for past services after the business relationship ceased. It was seen as a gift, therefore unsolicited and unexpected. Walton J stated at page 621E-H: “ ….. but when a payment is made purely voluntarily, on the termination of a trading relationship, that termination being so far as the parties can possibly foresee a permanent termination and is made for no other reason than the party making the payment is sorry that the relationship had to terminate …. then it appears to me to be quite clear that the payment does not arise or accrue to the payee by reason of any trade carried on by it…. to my mind these payments have none of the indicia of trading receipts whatsoever …. 376. They submitted that the case law indicates that genuinely voluntary payments or gifts are not taxable unless they can be attached to a pre-existing source (see Beynon v Thorpe [1928] 14 TC 1) or they are recompense for services provided that have not otherwise been adequately remunerated, or to make good a loss of profit (see Severne v Dadswell [1954] 35 TC 649 and Rolfe v Nagel [1981] 55 TC 585 ). 377. In the circumstances, they submitted that Mr Looney had incurred an allowable capital loss of £2,689,000 in the tax year 2007- 2008 and incurred no chargeable gain in the tax year 2011-2012 such that HMRC’s decision to amend his self-assessment return should be quashed and no capital gains tax was due or chargeable. Discussion and Decision 378. For the reasons set out at paragraphs 284-349 above, the Tribunal has rejected Mr Looney’s evidence on the balance of probabilities that USD $5 million paid on 17 January 212 into the PKF Swiss bank account of Nower Inc, Mr Looney’s Panamanian incorporated company, from Orchestra Holdings Ltd was a gift from Dermot Desmond to Mr Looney. The Tribunal is satisfied that is likely that Mr Looney received £3.84 million in total but this was not as a gift. 379. The Tribunal has found that it is more likely than not that the sum of £3.84 million was received in the period 2011-2012 in respect of the disposal and acquisition of Mr and Mrs Looney’s joint beneficial interest in the shares in Sandpiper Enterprises Ltd, which in turn owned the land in Canouan. Mr Looney has failed to discharge the burden to prove on balance that the receipt of £3.84 million was a gift and therefore did not represent the disposal of an asset nor a chargeable gain for the tax year 2011-2012. 380. It is perfectly likely that USD $5 million was indeed paid from Mr Desmond to Mr Looney using the mechanism of a payment from Orchestra Holdings Ltd to Nower Inc. However, it is unnecessary for the Tribunal to make any conclusive findings as to the identity of the purchaser of the Looneys’ interest in the Sandpiper shares or Canouan land. It is sufficient to find that there was a chargeable gain on the disposal of Mr and Mrs Looney’s interest for the sum of £3.84 million. 381. The Tribunal has therefore found that it is more likely than not the £3.84 million received by Mr Looney represents the proceeds of a disposal of an asset for the purposes of section 1 of the Taxation of Chargeable Gains Act 1992 (“TCGA 1992”) upon which he has made a chargeable gain. It represents a chargeable gain on the acquisition price of Mr Looney’s interest in the shares which is an asset for the purposes of section 21 of TCGA 1992. 382. The Tribunal is satisfied that the person chargeable to Capital Gains Tax includes the `beneficial’ owner of the asset of which has been disposed. Any actions by:  nominees;  bare trustees;  receivers, liquidators or trustees in bankruptcy, mortgages or charge holders or any other persons entitled to the asset by way of security; are attributable to the beneficial owner so that any gain or loss accruing on an actual disposal of the asset by the nominee etc. accrues to the beneficial owner. 383. If the transfer of the Sandpiper shareholding to Mr and Mrs Looney was never legally registered in their name, then it may well be that the entry in the appropriate register would show that the legal and registered ownership of the Sandpiper shares remained registered in the title of Canouan Resorts Development Ltd (the 2007 owner) until 2012. It may also be that legal title to the shares then passed directly to a new owner, whether that be Mr Dermot Desmond or some other person. If this is the case, the previous owner of the shares as of 2007 continued to be the legal owners of the shares up to the time of their sale and transfer in 2011-2012. 384. Nevertheless, the Tribunal is satisfied that even if the shares were never transferred into Mr and Mrs Looney’s names, the legal title holder was holding them on trust for Mr and Mrs Looney or as their nominee as from October 2007, when the terms of the share purchase agreement between the Looneys and Canouan Resorts Development Ltd were fulfilled, until 2011-2012 when the shares were sold. 385. Even if the original owner of the Sandpiper shares in 2007, Canouan Resorts Development Ltd, remained their legal title holder during the interim period until 2012, that company would have held the Sandpiper shares on trust or as a nominee for Mr and Mrs Looney, the holders of the beneficial interest, for the purposes of section 60 TCGA 1992. 386. For Capital Gains tax purposes what matters is that Mr Looney was the joint beneficial owner with his wife of the shares in Sandpiper Enterprises Ltd from 2007. Therefore, Mr Looney acquired a beneficial interest in the shares in 2007 (even if it was not also a legal interest) and disposed of that interest in 2011-2012. He and his wife signed the share purchase agreement and made the relevant payments totalling USD $4.359 million by October 2007 in compliance therewith to Canouan Resorts Development Ltd. It was the common intention of all parties that the Looneys should become the owners of the shares, consideration was given and relied upon. 387. Having paid for the shares in good faith Mr Looney and his wife became the beneficial owners of the shares and that was clearly understood both by them and the previous owner even if legal title did not pass or it was never recorded in the appropriate register. The identity of the legal and registered owners of the shares from 2007 to 2012 has not been established by Mr Looney – if it was not him and his wife. He could have provided the share title register or whichever relevant documents to prove the history of the legal title to the shares in Sandpiper and disprove any suggestion that Mr Desmond or one of his companies had subsequently acquired the shares in 2011-2012. There was no suggestion that this evidence would not be available to him. 388. The beneficial ownership of the shares had to be determined as at the date when the shares were originally acquired in 2007. It is unknown if there was any transfer or registration of legal title to the shares in Mr Looney’s (and his wife’s) name. The Tribunal was not provided any share certificate or entry from registry from any jurisdiction. 389. Nonetheless, the Tribunal is satisfied that a share purchase agreement had been agreed between Canouan Resorts Development Ltd with Mr and Mrs Looney and payment made pursuant to its terms such that there was a common intention they would acquire the joint beneficial ownership of the shares. In the absence of a legally binding express agreement as to beneficial ownership or registration of the legal title in the Sandpiper shares the Tribunal has ascertained from all the surrounding circumstances the intentions of those who participated in the transactions and other relevant events. The circumstances include the share purchase agreement and payments made by Mr Looney pursuant to it. The Tribunal is satisfied that the receipt of the sale proceeds upon disposal was a further indicator that Mr Looney had a beneficial interest or joint ownership of the Sandpiper shares. 390. The collective common intention is objectively established by means of reasonable inferences from evidence of what the participants actually did and what they said to one another: see Gissing v. Gissing [1971] AC 886 at 906 per Lord Diplock. The Tribunal has applied the presumption that the law of the Bahamas and St Vincent and the Grenadines is the same as English law in respect of contract law and beneficial ownership in line with Dicey on The Conflict of Laws . Therefore, the Tribunal is satisfied that irrespective of legal ownership, Mr and Mrs Looney jointly acquired the beneficial ownership or interest in the Sandpiper shares in 2007 and each held the beneficial interest in 50% of the shares until their disposition in 2012. 391. It is unlikely that the original owner of the Sandpiper shares, Canouan Resorts Development Ltd, having accepted payment from Mr Looney would have been free to sell or dispose of the shares to another purchaser without accounting to Mr and Mrs Looney for the value on disposition. 392. It is likely that if Mr Dermot Desmond was behind the payment of USD $5 million from Orchestra Holdings Ltd to Mr Looney through Nower Inc, he made the payment to purchase Mr and Mrs Looney’s beneficial interest in the Sandpiper shares. There was a clear connection between the purchase and the payment. 393. Mr Fonseka amended and submitted Mr Looney’s tax returns to include a capital gain upon the sale of shares (or land or property as the asset was believed to be) on more than one occasion. The gain was premised first as being attributable entirely to Mr Looney’s and then jointly with his wife before this was later retracted. This remained his position at least until Mr Looney chose to rely on an argument that because of a failure to register the transfer legal registration of the shares he might not be liable to any chargeable gain. 394. The fact that Mr Looney approved these returns suggests that Mr Looney accepted the gain was assessable on him and or his wife at some stage. The fact that Mr Looney approved different amended tax returns with the measure of the chargeable gain varying supports the Tribunal’s findings. 395. The Tribunal is satisfied that Mr Looney is liable to Capital Gains Tax on the disposal of an asset, his joint interest with Mrs Looney in the shares in Sandpiper Enterprises Ltd which owned land in the Canouan, for which they received £3.84 million. Mr Looney held the beneficial interest in 50% of the shares and is chargeable on the proceeds of their disposal. 396. Thus, there was a chargeable gain in Mr Looney’s disposition of his interest in the shares whether or not this interest was acquired by Dermot Desmond, a company of Mr Desmond’s or any other person. The Tribunal is satisfied that Mr Looney received £3.84 million in respect of the disposal of his joint interest in the shares. Entrepreneurs’ Relief . 397. Mr Looney’s original claim to entrepreneurs’ relief was made on the basis that the asset sold was a property which Mr Looney had bought for development purposes and sold after changing his mind and it was disallowed because the property was not an asset of any trade carried on by Mr Looney. Then it was claimed that the asset disposed of was actually the shares in the company, Sandpiper Enterprises Ltd. Then it was claimed that Mr Looney did not acquire any asset or interest in any asset but that the $5 million he received was not the proceeds of disposal or sale of his interest but a gift from Dermot Desmond. The Tribunal has rejected this final claim for the reasons set out above. 398. Officer Haley of HMRC wrote to Mr Fonseka on 3 September 2015 to ascertain whether the conditions for relief were satisfied. The reply dated 9 September 2015 was to the effect that as the purchase of the shares in Sandpiper did not go through, Mr Fonseka could not say whether the first condition was satisfied but accepted Mr Looney could not be an employee of the company; and Mr Looney did not acquire any of the share capital. Nonetheless the alternative submission was still pursued at the hearing that Mr Looney remained entitled to entrepreneurs’ relief should the Tribunal find that he had benefited from a chargeable gain. 399. The Tribunal is satisfied that entrepreneurs’ relief does not apply to the chargeable gain of Mr Looney upon the disposition of his interest in the shares of Sandpiper Enterprises Ltd. 400. The requirements of the Taxation of Chargeable Gains Act 1992 at Section 169H are not met for the following reasons. 401. Section169H(2) provides for three qualifying business disposals which would enable entrepreneurs’ relief to be claimed. Section 169H(2)(a) does not apply as there has not been a material disposal of businesses assets for the purposes of section 169I. 402. Section 169I (2) (a) does not apply as Mr Looney has not disposed of the whole or part of a business; section 169I(2)(b) does not apply as Mr Looney has not disposed of one or more assets in use in the business; and section 169I(2)(c) (disposal of one or more assets consisting of shares in or securities of a company) does not apply as Mr Looney has not disposed of an asset that satisfies the conditions of Section 169I(5), namely conditions A to C. 403. Condition A does not apply as Sandpiper Enterprises Ltd was not Mr Looney’s personal company nor a trading company or the holding company of a trading group nor was Mr Looney an officer or employee of the company. Therefore, disposal of the shares in Sandpiper Enterprises Ltd would only have been a material disposal for Entrepreneurs’ relief if all of the following sub-conditions of Condition A were satisfied: a) The company was a trading company (or the holding company of a trading group); b) Mr Looney were either an officer or an employee of the company (or one or more companies within the group); c) Mr Looney held at least 5% of the ordinary share capital of the company; and d) that gave Mr Looney at least 5% of the voting rights. 404. These conditions have not been satisfied in respect of the shares in Sandpiper Enterprises Ltd. It was not a trading company and Mr Looney was not an officer or employee of the company. 405. Condition B does not apply because Condition A was not met through the period of 1 year ending with the date on which the company ceased to be a trading company. Condition C does not apply as the assets disposed of were not relevant EMI shares. 406. Section 169H(2)(b) does not apply as there has not been a disposal of trust business assets. 407. Section 169(H)(2)(c) does not apply as there has not been a disposal associated with a relevant material disposal – this is defined under S169K which provides that there is a disposal associated with a relevant material disposal if conditions A, B and C are met. 408. The requirements section 169K are not met for the following reasons. The appellant has not met condition A as defined by section 169K(2) because he has not disposed of assets of a partnership or shares in or securities of a company. Condition B as defined at section 169K(3) has not been met as the individuals have not made a disposal of business assets as part of the withdrawal of the individual from participation in the business carried on by the company. The time limit in condition C is not relevant as neither condition A or B have been met. Calculation of the chargeable gain 409. The Tribunal is satisfied that the acquisition price for the interest in the shares was $4.359 million (approximately £2.1 million at the prevailing exchange rate) not $3.5 million or £2.688 million relied upon by the Appellant. 410. This is based upon the primary evidence contained within the share purchase agreement and relevant bank statements and banking documents for purchase in 2007. 411. The Tribunal is also satisfied that the disposal price in 2011-2012 was £3.84 million for the reasons set out above. 412. The calculation of any chargeable gain should be based upon the increase in the value of the asset. HMRC withdrew their initial submission that the acquisition price was USD $3.5 million and accepted it was USD $4.359 million as revealed by the bank documents and share purchase agreement. While Mr Looney did not accept the £3.84 million was derived from disposal of the asset, the Tribunal has found that it was and was not a gift. 413. Both parties agreed that the Tribunal should therefore value the chargeable gain as the difference in values between $4.359 million and $5 million being $641,000. They invited the Tribunal to apply to this sum the sterling exchange rate on 17 January 2012, the date of receipt of the USD $5 million, to derive the value of the gain. They submitted that they had examined the HMRC guidance and this was the appropriate method of calculation. 414. The Tribunal is satisfied that this is not the lawful way to value the gain. The Tribunal should subtract the acquisition price in dollars converted into sterling at the exchange rate at the time of acquisition from the sale or disposal price in dollars converted into sterling at the exchange rate prevailing at the time of disposal. The difference in these two values in sterling produces the valuation of the chargeable gain. 415. Such an approach is in accordance with that set out in Bentley v Pyke a nd George Knight & Ingeborg Knight v Revenue & Customs Commissioners ) 2016 UKFTT (TC) 819 . Judge Jonathan Richards stated the following at paragraphs 35 to 37 of the latter decision: 35. This question has come before the courts on two occasions previously: before the Court of Appeal in Capcount Trading v Evans (HM Inspector of Taxes) [1993] STC 11 and before the High Court in Bentley v Pike (Inspector of Taxes) [1981] STC 360. Both authorities are binding on me and both reached the clear conclusion that Method B is correct. I will focus my analysis on Capcount Trading since that is the decision of the superior court and, moreover, the authority in which the issue was considered in the greater detail. 36. The ratio (or principle) of the Court of Appeal’s decision in Capcount was that, since foreign currency (as distinct from sterling) was a distinct asset for CGT purposes (under what is now s21(1)(b) of the Taxation of Chargeable Gains Act 1992), expenditure incurred in a foreign currency is expenditure that consists of giving up a distinct asset, and not expenditure in “money”