taxation 33
British taxpayers pay British tax: shock!
The Court of Appeal has given judgment in two cases involving challenges to s.58 of the 2008 Finance Act. This section closed a tax loophole involving Isle of Man trust partnership arrangements and the particular feature which was challenged in each case was its retrospective effect. This meant that both applicants were suddenly liable to relatively significant sums in back tax and penalties, for the years in which they had (lawfully, at the time) taken advantage of tax mitigation schemes based around the relevant arrangements, writes Will Richmond- Coggan, a director at Pitmans LLP, specialising in contentious trust and probate matters
Mr Huitson was an IT contractor living in the UK and providing services here, as employee of an Isle of Man partnership. In the second case (Shiner) the applicants had been partners in a business acquiring and developing properties, but again as sub-contractors to a Manx partnership. The partnerships in question were between trust entities of which the applicants were beneficiaries. The partnership would contract with customers, and then employ the UK-based individuals to undertake the work, but all profits were created and retained by the Isle of Man structures.
Under the existing (pre-Finance Act 2008) double taxation arrangements between the Isle of Man and the UK, the profits were therefore treated as arising in the Isle of Man, such that no liability to UK tax arose, while as the profits were retained in trust no tax was payable in the Isle of Man either. This arrangement was not something that the taxpayers had come up with on their own – it was a legitimate scheme marketed by PriceWaterhouseCoopers and Montpelier respectively and HMRC had been aware of it for at least seven years prior to taking any action. Equally though, it was an
‘aggressive’ scheme, in the sense that it took advantage of what was obviously an oversight in the original drafting, rather than a tax break which the Government had deliberately intended to confer.
The challenge in Huitson was to the
compatibility of the retrospective legislation with the Human Rights Act, and in particular the right to quiet enjoyment of property. Shiner’s challenge adopted these challenges, but also complained that the effect of the legislation was to impede the free movement of capital between member states of the European Union and other countries.
In each case, the Court of Appeal gave these arguments short shrift. Since (despite being aware of it for some time) HMRC had never suggested that it would consent to schemes which took advantage of it, the Court found that the taxpayers should have been well aware both that the loophole might be closed, and that the effect of the closure might be retrospective. The Court was required to balance the rights of the individuals to certainty in their dealings with the rights of the wider community and, taking particular account of the aggressive nature of the scheme, the Court held
that the balance had to favour the community interest and that as such the retrospective legislation was not susceptible to challenge.
Because of the particular features of the case, the results were perhaps not very surprising, but insofar as it marks an endorsement of the Revenue’s ability to revisit existing loopholes and close them retrospectively where the community’s interest in increased tax revenue outweighs the interests of the individual, these decisions have potential implications for anyone who has engaged in any type of tax mitigation strategy.
Details: Will Richmond-Coggan
wrcoggan@pitmans.com
Chartered Accountants
Business Advisers
Registered Auditors
0118 989 9780
www.rice-associates.co.uk
Richard Somerville | Andrew Beet Sarah Wildey | David Rice
THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2011
www.businessmag.co.uk
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48