Business rates mitigation: Rossendale v Hurstwood, Wigan v PAG – Court of Appeal

The Court of Appeal has handed down judgment in the PAG case and the decision is in favour of the ratepayer.

The background facts are well known. PAG would approach a building owner with empty properties and enter into a commercial arrangement, whereby PAG would get a slice of any saving achieved through empty business rates relief. PAG would set up a company (the SPV) which would take a lease of the empty space; the SPV would then be placed into voluntary liquidation. An occupier which is being wound up qualifies the property for empty rates relief. The building owner and PAG would share the spoils.

In 2016, the High Court wound up certain PAG-controlled companies on the basis that this was an abuse of the insolvency process. However, following refinements of the scheme, the questions before the Court of Appeal were markedly different and the Court of Appeal decided that the local authorities did not have sufficient legal grounds to challenge the PAG scheme successfully.

First, the local authorities argued that the “corporate veil” of the SPV should be pierced: the SPV was set up solely to avoid taxation and its occupation should, in essence, be ignored. The Court found that there was no previous authority that piercing the corporate veil was intended to apply where companies wished to avoid taxation and that there was nothing novel or unconscionable about a company wishing to enter into a scheme which had the purpose of tax avoidance.

Secondly, the local authorities wished to invoke the Ramsay principle; that is, whether the Court could adopt a purposive approach to the relevant legislation and whether that purposive approach forbade the type of avoidance scheme which PAG ran. Again, the Court was against the local authorities on this issue. The legislation is clear in that the party who has the immediate legal right to actual physical possession of the property is the ratepayer. The lease to the SPV was valid and although certain elements of a “normal” landlord and tenant relationship were missing, that did not detract from the intention to create an entitlement for the SPV to take exclusive occupation of the property.

We understand that leave to appeal was refused, but with the amounts at stake and the resultant costs liability, watch this space.

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