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United Kingdom
The U.K. Special Commissioners June 11 dismissed Kellogg Brown & Root Holdings Ltd.'s appeal, Anding that the company and Highlands Holdings (UK) Ltd. were connected persons involved in a share sale that immediately followed Halliburton Co.'s 1995 demerger, and thus denied Kellogg Brown & Root's claim for a capital loss on the sale of the shares. [Kellogg Brown & Root Holdings Limited and The Commissioners for Her Majesty's Revenue and Customs, U.K. Special Commissioners, Spc00693, decision released 6/18/08]
Special Commissioner John F. Avery Jones ruled that when Halliburton Holdings Ltd. (HHL) - formerly Kellogg Brown & Root Holdings Ltd. (KBR)- sold the shares to Highlands Holdings (UK) Ltd. (HHUKL), the two companies were "connected" within the meaning of section 286(5) (b) of the Taxation of Chargeable Gains Act 1992 (TCGA).
Avery Jones found that a group of shareholders holding the greater part of the share capital of both Halliburton Co. and Highlands Insurance Group Inc. (HIG) were the same persons controlling both companies. HIG was the new parent of the insurance division under the restructuring. Avery Jones also found that the same shareholders controlled KBR and HHUKL.
The Special Commissioner therefore upheld H. M. Revenue and Customs' amendment to KBR's tax return disallowing KBR's claim to deduct a capital loss of GBP 14.8 million (US$26.5 million) on the sale of the shares against chargeable gains in the company's accounting period ending Dec. 31, 2000.
Dominic Stuttaford of Norton Rose LLP in London, the instructing solicitor for KBR, stated Sept. 4 that KBR intends to appeal the case to the United Kingdom's High Court.
The Special Commissioner's decision appears in the Text section of this issue.
Restructuring. KBR was the holding company for two subsidiaries within the Houston-based Halliburton Co. group:
* Highlands Insurance Co. (UK) Ltd. (HICUK); and
* Highlands Underwriting Agents Ltd. (HUAL) .
The Halliburton Co. decided in 1995 to spin off its global insurance division and as part of that reorganization transferred the shares in HICUK and HUAL to newly incorporated HHUKL, a subsidiary of HIG
HIG was the new U.S. parent company of the insurance division.
KBR was a wholly owned subsidiary of Halliburton Holdings Inc. (HHI).
HHI had several different classes of stock. The stock was...