Unhappy swaps

Prudential plc claimed £105 million paid by it in relation to two swap transactions (£65 million and £40 million) in its corporation tax return for the period ending 31 December 2002. HMRC disallowed the claim saying that neither payment was a qualifying payment within the wording of FA 1994 s 153. The company appealed.

The Special Commissioners dismissed the appeal so the taxpayer appealed.

Sir Andrew Morritt in the High Court said that it could not have been Parliament's intention that any consideration under a currency contract should be within FA 1994 s 151(1) and therefore be a qualifying payment under s 153. Section 151(1) envisaged a currency contract which included the provision imposing the duty on the qualifying company to make the payment having a notional existence before the counterparty entered into that or another currency contract. Early or front end payments which were...