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Tax case on jurisdiction of s 739 - ToAA - Fisher

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    Tax case on jurisdiction of s 739 - ToAA - Fisher

    A decision on the above case (TC03921) was released in August this year following a hearing in February 2013.

    The key question was whether the UK's rules on taxation of assets transferred abroad could be defeated by

    1. a need for INCOME TAX to be avoided
    2. a need to be applied to individuals acting independently
    3. whether the "motive" defence could be invoked
    4. whether HMRC were restricted to income arising from the business transferred

    The judgment runs to 178 pages and I'm not going to be able to capture all the nuances and finer workings of the ratio here. I have therefore limited my summary to what I think are important points to keep in mind.

    Facts

    The taxpayers were to owners of Stan James Bookmakers. Their competitors devised a means for UK punters to place bets via a non UK operation which avoided a 9% UK duty. In order to remain competitive, the directors decided that they had to follow suit. Accordingly they did a scheme whereby their operations moved to Gibraltar and subsequently expanded that to include internet betting. Two of the directors moved to Spain to run the operation. A number of share exchanges took place along with payment of salary and bonuses and the issue arose of whether the income etc should be taxed in the UK under the s739 rules.

    HMRC issued assessments, some of which were under the "discovery" rules as they were otherwise out of time.

    1. Was it necessary for INCOME TAX to be avoided in order for s 739 to apply

    As opposed to any other form of tax. The short answer is "NO". Subsection 1 of s 739 makes reference to income tax but the Court held that this subsection was not operative and was merely a preamble setting out the purpose of the section. Even if that analysis was incorrect, the subsection deals with the "prevention" of tax avoidance and therefore it was not necessary for there to actually be tax avoided in order for it to apply. A reference and analysis of another avoidance case (McGuckian) was undertaken as the argument was that the income would have been subject to tax but because of procedural errors it wasn't, but even so the judges distinguished this. Because betting duty was avoided, the section applied.

    2. Was it necessary for individuals to be acting separately?

    IN this case, the shares and operation of the business was a family affair. Mother, father, son and daughter were all involved. In the UK company they had certain shareholdings. In the Gib company these were slightly different as mother's position was being managed out. It was argued that it was impossible for one person's intent and motive to be agreed due tot he fact that the whole company was involved and because s739 was applicable to the actions of individuals it was not appropriate.

    The judges decided that it was possible to separate the interests and motives of the individuals and that a reasonable calculation of liability could be arrived at.

    3. Was there sufficient non tax motive for the transfer?

    The company argued that they had to move in order to remain competitive and stay in business and that the lower tax (betting duty and corporation tax and eventually income tax following their moves out of the UK) were just consequences of that decision to remain in business.

    The judges disagreed. They criticized the HMRC tests of what is "commercial" as being too narrow but nonetheless found that the tax consequences of the action were well understood and appreciated and "one of the main" purposes of the move was a reduction in tax liability and that this was an important reason in the decision to move. Consequently, although not designed for the purpose of avoidance, it had sufficient elements to allow the assessments to stand.

    Part of the defence here was whether the application of s739 was justified and proportionate in its application when faced with EU safeguards on freedom of movement. In a slightly bizarre set of paragraphs on the reasoning (which I confess I find hard to follow), the Court held that there was no valid justification or proportionality in respect of mother because she was in fact of Irish nationality but there was for father and son because they were British.

    4. Are assessments limited to the business transferred?

    No. Profits from the business moved (essentially telebetting) were used to build an internet business including poker sites which were also profitable. HMRC could reasonably tax everything because it was just one business.

    In the end the assessments for some years were dismissed on the grounds that there had been no discovery or in one case was just out of time. Others were upheld.

    Conclusion

    There are some very odd twists of logic here to find pretty much for HMRC.

    If this is not appealed I would be very surprised.

    I need to think on this a bit longer and would appreciate your thoughts on the above very brief summary.

    Thanks

    #2
    As far as I know it has been appealed. Very important case for all of us.

    Comment


      #3
      Point 1. I read Fishers judgement as saying "if ANY form of tax avoidance happen, ToAA can apply". But if EBT is proved legal in UK (through Rangers and others), no TAX saved by contractor by transferring abroad, then how does ToAA apply. In other words, some form of tax saving should occur for ToAA to apply. After all ToAA is their for stopping tax avoidance and if no tax has been avoided it should not apply. For a contractor, it would have been same whether EBT was in UK or abroad. If a loan from EBT in UK is not taxed then a loan from EBT in IoM should also not be taxed.

      If any tax was saved then it was by the employer on who contractor had no control or involvement at all

      Saleos thinks otherwise and don't see as a strong argument so I might be wrong. Saleos definitely know more

      Comment


        #4
        Related Reading

        EU Law Sets the Record Straight on Tax Avoidance – The Fisher Case

        Comment


          #5
          These days tribunals are increasingly looking at the purpose of an arrangement, whether it had any genuine commercial rationale or if it was contrived and artificial.

          Unfortunately this immediately puts most contractor schemes on shaky ground, even if all the steps were legal, because it's very hard to point to any other purpose than reducing tax.

          Comment


            #6
            My question is if EBT is legal in UK and is not avoidance then why and how is it avoidance in IoM?

            Comment


              #7
              Incongruity

              ...which is interesting insofar it does show that, from a legal perspective, a lot of the arguments and inconsistencies are yet to be dealt with by a tax court in relation to EBTs.
              We have inconsistency with the application of IHT, the application of ToAA and the relevance (or not) of the Rangers decision.

              At some point, HMRC will have to face a well defended EBT decision. If they were kazillion-percent comfortable that they would win - they surely, surely would have done so, if only to make the case on the settlement offers more persuasive.
              Instead they add IHT on, which renders part of their arguments incongruous.

              Of course, APNs are a game changer, but in order for HMRC to keep that money - to truly have it they need to win in a court. Unless one settles....

              Usual caveat - anyone left in a scheme at the moment - get out.

              Comment


                #8
                HMRC should have offered some benefit for people to come forward. Instead they are lying ( I experienced first hand with settlement opportunity helpline) and penalising for settling with IHT.

                Comment


                  #9
                  Originally posted by DonkeyRhubarb View Post
                  These days tribunals are increasingly looking at the purpose of an arrangement, whether it had any genuine commercial rationale or if it was contrived and artificial.

                  Unfortunately this immediately puts most contractor schemes on shaky ground, even if all the steps were legal, because it's very hard to point to any other purpose than reducing tax.
                  Agreed in spades.

                  The above argument is known as the "Ramsay principle".

                  Essentially it looks at where we you pre transaction, where you were post transaction and says if you have a tax advantage because of the way in which legal agreements were put in place, or because legal documents purport to treat some payments as something else, then all those agreements can be laid aside.

                  This is achieved by looking at the FACTS (e.g. did money move from A to B and if so who had the benefit) and applying the terms and conditions in the tax law to those FACTS. Oftenm called a purposive analysis.

                  Comment


                    #10
                    Originally posted by Rob79 View Post
                    Agreed in spades.

                    The above argument is known as the "Ramsay principle".

                    Essentially it looks at where we you pre transaction, where you were post transaction and says if you have a tax advantage because of the way in which legal agreements were put in place, or because legal documents purport to treat some payments as something else, then all those agreements can be laid aside.

                    This is achieved by looking at the FACTS (e.g. did money move from A to B and if so who had the benefit) and applying the terms and conditions in the tax law to those FACTS. Oftenm called a purposive analysis.
                    So, cutting to the chase, does this mean that the "Ramsay principle" can be applied to almost any situation other than straightforward PAYE?

                    In essence, any arrangement I make could be successfully challenged? no matter how legal it may appear to be?

                    Comment

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