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Morgan Grenfell & Co Ltd, R (on the application of) v Special Commissioner, Court of Appeal - Administrative Court, November 08, 2000, [2000] EWHC Admin 415



Case no: CO/4481/2000

IN THE high court of justice
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT

Royal Courts of justice
Strand, London, wc2a 2ll

Wednesday 8 November 2000

Before:

LORD JUSTICE BUXTON
And
MR JUSTICE PENRY DAVEY
-------------------

The Queen
-v-
A SPECIAL COMMISSIONER
EX PARTE MORGAN GRENFELL & CO LTD
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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
____________________

Michael Beloff QC and Mr Giles Goodfellow (instructed by Messers Slaughter and May) for the applicants

Mr Timothy Brennan and Miss Ingrid Simler (instructed by the Solicitor to the Inland Revenue) for the Respondents

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Judgment
As Approved by the Court

Crown Copyright ©

LORD JUSTICE BUXTON:

This is the judgment of the Court.
Background
These proceedings arise in the context of a tax-related scheme called Sale With Tax Enhanced Leasing Arbitrage [STELA] devised and operated by Morgan Grenfell & Co Ltd [MG], the well-known merchant bank. The scheme was commended to clients by MG as enabling them to secure extremely low cost term funding through a tax arbitrage based on property.
It will be necessary to describe STELA in somewhat more detail at a later stage of this judgment. Its essence, however, was that (to quote MG's documentation promoting the scheme) the client (in the example at which these proceedings are directed, Tesco plc)
grants a long leasehold interest in property that it already owns to [MG] and then leases it back under a sub-lease in a highly tax efficient manner........The lump sum obtained from the grant of the property interest is amortised through rental payments made by Tesco under the sub-lease. Tesco receives the sale proceeds tax free (or sheltered from tax) and obtains a tax deduction for the rental payments which repay both the principal and the interest. That is the tax advantage obtained by Tesco. The substantial premium paid by MG for the granting of the leasehold interest, seen by Tesco as the proceeds of the sale of the lease, would not be expec...
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