In Chemidex Generics Ltd v HMRC [2024] TC09387, the First Tier Tribunal (FTT) ruled that the taxpayer's valuation and a ten-year amortisation period were compliant with UK GAAP and allowed relief for amortisation for Corporation Tax purposes.
Chemidex Generics Ltd (CGL) acquired Intellectual Property (IP) on 27 March 2013 from a related party. CGL valued the IP at £40 million, amortised it over 10 years and claimed relief for the amortisation.
- HMRC opened an Enquiry and issued Closure notices, on the basis that the market value of IP was £9 million and should have been amortised over 20 years.
- CGL Appealed to the First Tier Tribunal (FTT).
The FTT found that:
- The market value of the IP under s.845 CTA 2009 was £40 million.
- No precise and definitive figure is the correct valuation, instead a justifiable range must be identified.
- After reviewing all the underlying evidence, the FTT accepted the taxpayer's (Mr Engineer's) evidence. They concluded that his understanding of the relevant market, along with the valuations from Mr Engineer and CGL's accountant, provided a justifiable range for the price a hypothetical purchaser would have paid.
- Although the accounts were not prepared strictly in accordance with UK GAAP, CGL’s approach of using a 10-year period for amortising the value IP was found to be compliant with UK GAAP.
- For UK GAAP compliance, the amortisation period must fall within a range which ensures the accounts are reliable and provide a true and fair view.
- Neither expert was prepared to offer an opinion on a precise period and the FTT similarly agreed that it is a matter of accountancy judgement.
- Both experts made diligent efforts to identify appropriate comparators but faced major challenges given the unique nature of the business model. The FTT found the comparators were not helpful in determining the amortisation period because the companies involved are so different to CGL.
- CGL had adopted a prudent position (justified by the nature of the business model and IP) by using a 10-year period, which was within the acceptable range within UK GAAP.
The FTT allowed the appeal.
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