BN66 - JR Judgement Day

[Tax_shouldnt_be_taxing]

Anyone thought to ask the National Lottery for a grant?

[silver_lining]

Goodness. I am quite surprised at this, even knowing that the BBC is not a particularly high quality news source, especially the sarcastic response at the end.

Think it's time to start 'dodging' the license fee!

only serves to highlight, this would never gained any support by being highlighted in the media

Forget the headlines anyhow, thats just HMRC PR at work as you would expect....

[normalbloke]

Legal or Illegal?

What I can't get my head round is that I did nothing illegal for the years I was in the scheme, yet the Finance Act of 2008 suddenly made it illegal. And now a judge has ruled that its fine to do that sort of thing. To my naiive way of thinking, that can't be right in a civilised society, however you look at it.

[SantaClaus]

Response from the BBC, the high quality unbiased news corporation…



Dear Sir,

Thank you for your interest in our article. It was based on reading the 20-page High Court judgement.

In it Mr Justice Parker made it very clear that the Isle of Man tax arrangements had no genuine commercial purpose and were artificial; that the users of the scheme had been warned over several years by HMRC that the scheme might turn out to be illegal; that the users had every opportunity to pay "on account" or put money aside in case the scheme was eventually ruled illegal; and that it was quite proper for the government to outlaw the arrangements with retrospective effect.

It is quite clear that the scheme's users entered into it to dodge the normal levels of UK tax.

What else did they think they were doing? Contributing to the greater good?

Yours sincerely,

Ian Pollock
BBC News website

http://www.bbc.co.uk/complaints/handle.shtml

This shows how naive the media really is. There is no recognition in his reply (or any of the papers) that this is a landmark case that will change our taxation system for good. Retrospection has effectively been given the green light today. Maybe you should write back and tell that to the Pillock, I mean Pollock.

[Tax_shouldnt_be_taxing]

The Judgement

Folks,

Focus, read and re-read this key extract (my emphasis):

Mr Elvin QC rightly pointed out that section 2(3) reflected established case law, in particular, Badeley v Consolidated Bank (1888) 38 Ch D 238 especially at 258-259 by Lindley LJ (as he then was). He also referred to the modern classic description of the "characteristics of an ordinary English partnership" by Peter Gibson LJ in Memec v IRC [1998] STC 754:

"(1) the partnership is not a legal entity; (2) the partners carry on the business of the partnership in common with a view to a profit …(3) each does so both as principal and (see s.5 of the 1890 Act) as agent for each other, binding the firm and his partners in all matters within his authority; (4) every partner is liable jointly with the other partners for all the debts and other obligations of the firm (see s.9 of the 1890 Act); and (5) the partners own the business, having a beneficial interest in the form of an undivided share in the partnership assets…including any profits of the business."
Although, argued Mr Elvin QC, the absence of any one of these indicia may not negate the existence of a partnership, the absence of four of the five must be taken as (at least) strong evidence that no partnership existed: the trustees were the partners as a matter of law and the Claimant was no more than a beneficiary of the Trust which received income from the Partnership.

This appeared to me to be a formidable argument. In response Mr Singh QC suggested that the rule in Archer-Shee could be taken to its logical limit: in effect the trustee simply drops out of the picture; everything being done by the trustee is deemed to be done by the owner of the interest in possession. At first impression, this struck me as a fiction too far, and I note that Viscount Sumner in Archer-Shee implicitly considered that the notion that the life tenant could be treated as carrying on a business in fact carried on by the trustees would be, to put the matter at its lowest, somewhat difficult to square with orthodox principles.

The point is of some significance because, according to the evidence, it was the one upon which HMRC relied (from the end of 2007); and the Explanatory Notes to the relevant provisions of the Finance Bill (Clause 55: Double Taxation Arrangements: UK Residents and Foreign Partnerships) stated at paragraphs 16-17:

"The Government believes that a partner for the purposes of that legislation has always included all those persons entitled to a share of income or capital gains of the partnership. As such, the UK individuals remain liable to UK tax despite the elaborate, artificial structure designed to exempt them. This clause will put it beyond doubt that the legislation has always had that effect."
It is on this basis that Mr Singh QC submits that the challenged retrospective legislation does no more than make clear what the earlier legislation meant in any event (see paragraph 75(vii) below). HMRC did not waive any legal professional privilege that attached to any advice that they might have received from counsel on this issue. As I have said, on the material put before me, I have significant doubts whether "member of a firm" could extend to a person in the Claimant's position but, given the background, and the need to interpret anti-avoidance legislation in a strongly purposive manner, I could not rule out the possibility that, if the point had been litigated, HMRC might have succeeded in persuading the courts that its interpretation was correct.

So what was the evidence before the end of 2007? Technical Exchange 63 where HMRC state that it would be extremely unlikely to claim the tax. Hmm, consistent then?

The author of "Technical Exchange" – Issue 63 of 31 July 2002 (a HMRC document) thought that "for technical reasons" it was extremely unlikely that HMRC could apply section 739 to the arrangements.

[Basher]

What I can't get my head round is that I did nothing illegal for the years I was in the scheme, yet the Finance Act of 2008 suddenly made it illegal. And now a judge has ruled that its fine to do that sort of thing. To my naiive way of thinking, that can't be right in a civilised society, however you look at it.

I totally agree normalbloke. Its like Ive spent the last 8 years driving 35 mph through a 40mph speed limit, and telling the Police each time I did it ! only for them to tell me that they have decided to change the speed limit retrospectively...and fine me with interest !!

[TaxDude]

We need to fight this fight

I moved to this country about 7 years ago. I joined the scheme within 6 months of being in the country and largely because all the other contractors in the office were on it … I figured I was in good company.
Both our kids are born here and we all now have citizenship. I love the place – if feels like home – but this situation worries me. If the government wins this, it means there are no rules anymore between the government and the citizens. You don’t have the letter of the law to protect you from government and institutions … strangely that’s why I moved here … for the better governance. This feels like Zimbabwe … but instead of Mugabe just sending the cops to beat you up, here we change the law and then send the cops .. same end result. The Judge agreed we did nothing wrong but still ruled against us … this needs to go to Appeal. And if we lose and lose again and again then I think we will all sit back and re-evaluate whats been truly lost .. and it will be more than the money.

[SantaClaus]

Folks,

Focus, read and re-read this key extract (my emphasis):

Mr Elvin QC rightly pointed out that section 2(3) reflected established case law, in particular, Badeley v Consolidated Bank (1888) 38 Ch D 238 especially at 258-259 by Lindley LJ (as he then was). He also referred to the modern classic description of the "characteristics of an ordinary English partnership" by Peter Gibson LJ in Memec v IRC [1998] STC 754:

"(1) the partnership is not a legal entity; (2) the partners carry on the business of the partnership in common with a view to a profit …(3) each does so both as principal and (see s.5 of the 1890 Act) as agent for each other, binding the firm and his partners in all matters within his authority; (4) every partner is liable jointly with the other partners for all the debts and other obligations of the firm (see s.9 of the 1890 Act); and (5) the partners own the business, having a beneficial interest in the form of an undivided share in the partnership assets…including any profits of the business."
Although, argued Mr Elvin QC, the absence of any one of these indicia may not negate the existence of a partnership, the absence of four of the five must be taken as (at least) strong evidence that no partnership existed: the trustees were the partners as a matter of law and the Claimant was no more than a beneficiary of the Trust which received income from the Partnership.

This appeared to me to be a formidable argument. In response Mr Singh QC suggested that the rule in Archer-Shee could be taken to its logical limit: in effect the trustee simply drops out of the picture; everything being done by the trustee is deemed to be done by the owner of the interest in possession. At first impression, this struck me as a fiction too far, and I note that Viscount Sumner in Archer-Shee implicitly considered that the notion that the life tenant could be treated as carrying on a business in fact carried on by the trustees would be, to put the matter at its lowest, somewhat difficult to square with orthodox principles.

The point is of some significance because, according to the evidence, it was the one upon which HMRC relied (from the end of 2007); and the Explanatory Notes to the relevant provisions of the Finance Bill (Clause 55: Double Taxation Arrangements: UK Residents and Foreign Partnerships) stated at paragraphs 16-17:

"The Government believes that a partner for the purposes of that legislation has always included all those persons entitled to a share of income or capital gains of the partnership. As such, the UK individuals remain liable to UK tax despite the elaborate, artificial structure designed to exempt them. This clause will put it beyond doubt that the legislation has always had that effect."
It is on this basis that Mr Singh QC submits that the challenged retrospective legislation does no more than make clear what the earlier legislation meant in any event (see paragraph 75(vii) below). HMRC did not waive any legal professional privilege that attached to any advice that they might have received from counsel on this issue. As I have said, on the material put before me, I have significant doubts whether "member of a firm" could extend to a person in the Claimant's position but, given the background, and the need to interpret anti-avoidance legislation in a strongly purposive manner, I could not rule out the possibility that, if the point had been litigated, HMRC might have succeeded in persuading the courts that its interpretation was correct.

So what was the evidence before the end of 2007? Technical Exchange 63 where HMRC state that it would be extremely unlikely to claim the tax. Hmm, consistent then?

The author of "Technical Exchange" – Issue 63 of 31 July 2002 (a HMRC document) thought that "for technical reasons" it was extremely unlikely that HMRC could apply section 739 to the arrangements.

I think the sentence about 2007 is a little ambiguous.

I dont think the Judge was referring to evidence before 2007, just a point that Singh made about Archer-Shee and the evidence provided in general.

In the part you have highlighted, it appears to me that the Judge is validating that Padmore doesn't apply to us, but is giving HMRC the benefit of the doubt; "HMRC might have succeeded in persuading the courts that its interpretation was correct".

Maybe I'm wrong, its how I read it though.

[robinhood]

Don't worry the money will be well spent. Taxpayers pick up the 6m annual bill for bliar's security, so i worked out i'll be paying 1.5 weeks worth... Not a bad return for possible banktruptcy

[ContractIn]

I will stick with all our options to the bitter end, but inevitably believe we will lose.

Its too bigger landmark of a case and I’m sure words are being said in the gentleman’s clubs (not spearmints or maybe) at the highest order in support of HMRC so whoever ends up with judging (if we get an appeal) will find favour of hmrc.

Sorry to be a doom monger but at the end of today this is my view, especially after the judgement, albeit flawed, which does not provide any support to further our case.

I hope I’m wrong, been bad day.