BN66 - Round 2 (Court of Appeal)

[Tax_shouldnt_be_taxing]

Interesting note at the end of the judgement:



Ultimately irrelevant to our case, as the effectiveness or otherwise of the scheme is not what is under consideration, but at the very least an encouraging return to the 'letter' rather than the 'spirit' of the law.

Agreed. And when you consider that Parker used "fair share" and "Public Policy" as grounds to dismiss our appeal, this case shows that such instruments do not override the rule of law. This is a positive consideration for us IMHO. Not getting carried away with this but there appears to be some traction for us in the LJ's considerations.

So on what grounds can the LJ's rule in favour of HMRC? Not the 2 bullets that Parker fired. Not the amount of tax at stake. Not that it was "artificial". They seem to have ruled these out in this judgement.

Come to think of it, the CoA may not be ruling on whether our scheme was legal, but what about PwC? The EC have already ruled that the UK may not be applying the law correctly on Free Movement of Capital (The PwC case). So if PwC win (because that scheme worked is being ruled on) what does this do to BN66? Surely not only can it not be retrospective, but... can it even be legal now? Have I missed something subtle?

[DonkeyRhubarb]

Surely not only can it not be retrospective, but... can it even be legal now? Have I missed something subtle?

No I don't think you have.

Also, bear in mind BN66 contained 2 provisions, one was the retrospective bit (s.58) and the other was the prospective element (s.59 I think).

The prospective piece was, I believe, wider in scope than s.58, so it may be even more vulnerable to the EC ruling on free movement of capital.

[Tax_shouldnt_be_taxing]

No I don't think you have.

Also, bear in mind BN66 contained 2 provisions, one was the retrospective bit (s.58) and the other was the prospective element (s.59 I think).

The prospective piece was, I believe, wider in scope than s.58, so it may be even more vulnerable to the EC ruling on free movement of capital.

Whilst not getting excited by my line of reasoning and this recent judgement, if the PwC case wins, then not only do we win by default but surely on HR grounds of A1P1 we win anyway since it *could* make BN66 illegal prospectively too. It's easy to find a glimmer of hope in all of this so not clutching at straws. Just applying some reasoning to the LJ's wording on this judgement. And for that consideration, the wording in our case (and that of PwC) almost counts for more than the win/lose outcome.

[seadog]

Point 14 is worthy of note:

"HMRC persuaded the Special Commissioner that SHIPS 2 did not succeed. (If it did, about £24m would be lost in tax, though that fact is irrelevant to the point of law.)"

What does that say about the claims from Timms and Co about 200M being at risk to the Exchequer? I would interpret the above as meaning the scale of a claim has nothing to do with the legal relevance.

Read point 17. Mummery tells it straight as to the role of the courts in tax disputes. Interpret it as you will.

The very last 2 paras are worth considering when comparing this case to ours:

"In the present case it has not been suggested that the payment of premium followed shortly by a surrender of the bonds were a sham. As Mummery LJ has said, they were legal events with legal consequences. They were events which ICTA has caused to carry fiscal consequences. The particular consequences in the present case were obviously not foreseen or intended by the legislature; but legislation, especially legislation which is highly engineered, can have unintended consequences.

Unattractive as the result is for other taxpayers and the rest of society, I agree with Proudman J and Mummery LJ that the court cannot lawfully hold, as a matter of proper construction of the statute, that because the sole purpose of steps 3 and 4 was to avoid tax by the creation of a corresponding deficiency unrelated to any underlying commercial loss, those events are therefore to be treated as if they had not occurred."

This says to me that even one LJ who was not keen on ruling in favour of tax avoidance, found that he had to on legal grounds.

I have not read through full case but the difference here is that we are not appealing against the legality of the scheme but whether S58 breached our human rights.

Unfortunately that is a much harder hurdle to overcome and precisely why HMRC chose to go down this route.

They probably knew they would lose the legal case but thought they could win on HR grounds.

[DonkeyRhubarb]

I have not read through full case but the difference here is that we are not appealing against the legality of the scheme but whether S58 breached our human rights.

Unfortunately that is a much harder hurdle to overcome and precisely why HMRC chose to go down this route.

They probably knew they would lose the legal case but thought they could win on HR grounds.

True but HMRC are not infallible.

[Tax_shouldnt_be_taxing]

True but HMRC are not infallible.

Nor are they affable

[johnnyguitar]

I have not read through full case but the difference here is that we are not appealing against the legality of the scheme but whether S58 breached our human rights.

Unfortunately that is a much harder hurdle to overcome and precisely why HMRC chose to go down this route.

They probably knew they would lose the legal case but thought they could win on HR grounds.

I thought we (Montpelier) chose the human rights route ? as we were the ones appealing against BN66.
I've often wondered how many other avenues of attack are available to us and if any are worth pursuing should this route fail - and if Montpelier had the energy to pursue alternate lines...

In fact, I always understood that even Parker felt that pre-BN66, our scheme was legal and NOT caught by Padmore - therefore making BN66 a CHANGE and not a CLARIFICATION - isn't there an angle there?

[DonkeyRhubarb]

I thought we (Montpelier) chose the human rights route ? as we were the ones appealing against BN66.
I've often wondered how many other avenues of attack are available to us and if any are worth pursuing should this route fail - and if Montpelier had the energy to pursue alternate lines...

In fact, I always understood that even Parker felt that pre-BN66, our scheme was legal and NOT caught by Padmore - therefore making BN66 a CHANGE and not a CLARIFICATION - isn't there an angle there?

There may be other angles, but ECHR and EC Law are the obvious ones because these sit above UK legislation enacted by Parliament.

[DonkeyRhubarb]

Nor are they affable

No but they are good at telling a fable.

[phileds]

What in this instance is a "win" for us?

I'm lightly affected by BN66 compared to some, as I was only in the scheme for a couple of years, but this experience has taught me that even if BN66 is somehow overturned. if somehow HMRC decide to back off, and remove their demand for tax, the level of stress, worry and uncertainty has simply not been worth the amount of money I might get back. It truly hasn't.

Montpelier have made the right noises and moves in fighting this, but ultimately they walk away with their millions in fees, and we the clients bear the stress and financial uncertainty.

In fact the only parties that seem to have benefited from IR35 and the various avoidance measures are the sodding bean-counters. Was not amused to read that the PCG is not committed to abolishing IR35, just attacking the status quo. Are the funded by contractors, or the accountants?