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Share-for-share exchanges after the Euromoney case: is it possible to tweak the deal for a better tax result?

Share-for-share exchanges after the Euromoney case: is it possible to tweak the deal for a better tax result?

Share-for-share exchanges are a common part of company sales and reorganisations.

Broadly, where a shareholder disposes of shares in company A in exchange for shares in company B, and following the disposal company B holds more than 25% of the shares in company A, the shares in company B are deemed to stand in the shoes of the shares in company A.  They are treated as having been acquired at the same time and for the same consideration as the original shareholding in Company A. It is deemed that no disposal has taken place and, as there is no chargeable gain, no tax liability crystallises on the exchange.

Share-for-share treatment is subject to certain conditions, of which one is that it applies only if the share exchange is for bona fide commercial reasons and is not part of a scheme or arrangement of which the main purpose, or one of the main purposes, is the avoidance of liability to capital gains tax or corporation tax.

HMRC provides a statutory clearance service to confirm in advance of a transaction that the main purpose test is met.

The First-Tier Tax Tribunal recently considered this main purpose test in Euromoney Institutional Investor PLC v HMRC.

Euromoney Institutional Investor PLC v HMRC

The taxpayer, Euromoney Institutional Investor PLC (“Euromoney”), initially agreed a sale of shares in a subsidiary to a third party in exchange for shares in the purchaser and cash.

If this transaction that had been implemented as initially agreed, it was accepted that HMRC would have given clearance in respect of the share element of the consideration. However, prior to the implementation, the tax director suggested that if Euromoney was issued with redeemable preference shares rather than the cash element, then those preference shares could be retained for a year and sold with the benefit of the Substantial Shareholding Exemption (“SSE”), thereby saving £2.8 million of corporation tax that would otherwise been payable on the cash consideration. Euromoney submitted a clearance application to HMRC on this basis, but the transaction proceeded before HMRC responded.

HMRC refused to give clearance and to sought to assess Euromoney to corporation tax on the full consideration received on the basis that the share-for-share treatment did not apply to any part of the consideration.

Euromoney appealed to the First-Tier Tax Tribunal.

HMRC’s argument

Section 137 TCGA 1992 denies share-for-share treatment if shares are issued in an exchange which forms part of a scheme or arrangement of which one of the main purposes is the avoidance of capital gains tax or corporation tax.

HMRC contended that the the amendment of the terms to issue redeemable preference shares rather than cash was “the arrangement”.

Although it was not spelled out, the argument appears to have been that because all of the shares which Euromoney held originally were disposed of in the same transaction, the ordinary shares which it acquired were also issued in an exchange which formed part of the arrangement, and the sole purpose of “the arrangement” was to obtain SSE. On this basis, it was contended there was a taxable gain on the whole of the disposal.


The judge disagreed with HMRC and held that “the arrangement” should be regarded as the overall share-for-share exchange, and that the use of redeemable preference shares to obtain an SSE advantage was not a main purpose of the arrangement.

The judge, interpreting the meaning of “main”, said that the tax saving of £2.8m represented less than 5% of the total sale consideration and so the tax advantage was not a main purpose. (The tax saving was over 20% of the cash consideration).

Rather, it was a commercial arrangement, to which the use of preference shares was a late addition, and the fact that the company went ahead with the transaction without waiting for clearance showed that Euromoney believed that there was no tax downside to the exchange and would have gone ahead with it if the SSE advantage could not have been obtained.


Is it possible to tweak a deal including a share-for-share exchange to get a better tax result without losing the relief? And might the judge’s analysis in the Euromoney case extend to other tax reliefs that are also subject to a main purpose test?

Although the Euromoney decision may give cause for optimism, we would urge caution.

The company took no professional advice on the downside of the tax director’s idea, and so went ahead anyway.  HMRC’s argument was that there was a £10m downside because of the loss of relief, and the company had to incur the expenses of a tribunal to prevent this. Choosing not to apply for and wait for a clearance as a demonstration that tax avoidance is not a main purpose can backfire badly.

Moreover, HMRC may wish to appeal this decision. It doesn’t seem to be consistent with the decisions in the higher courts. For example, the Court of Appeal, in the Lloyds Bank Leasing case, said ‘Even if each of the transactions was entered into for a genuine commercial purpose, it may still be the case that a main object of structuring them in the way they were was to obtain the capital allowances.’

Furthermore, the tribunal judge in Euromoney put significant weight on the evidence of the subjective intention of the company as expressed by its tax director. In a 2020 case (R v Allam) on the main purpose test for transactions in securities, an individual who had previously been refused a clearance decided to implement a similar transaction without applying for a clearance because he thought that the legislation had changed, and the tribunal accepted his position as he was a credible witness.

Transactions can unfold at speed and potential commercial and tax saving opportunities may emerge along the way as they did in the case of Euromoney.

While HMRC clearance is not a requirement, if there is doubt on whether the main purpose test will be satisfied, it would be advisable to obtain it before the transaction and, as such, the time required for seeking a clearance should be factored into the timetable.  

Trident Tax advise UK and international companies on all kinds of restructuring including creating new groups, demergers, pre-sale reorganisations and the exit process itself. If you have any queries on corporate transactions, please contact us.