Fri 19 Sep 2014
The Fisher case concerned the scope of Income Tax Act 2007 s 720 and its predecessor section, ICTA 1988 s 739 which charges a person who transfers assets to another person overseas and still has power to enjoy income deriving from the assets transferred.
The Fisher family company, “SJA” was a long established betting business. In 2000 it transferred its telebetting operation to a newly incorporated Gibraltar resident company (SJG) which was owned by the same individuals, though not in identical proportions. SJG then operated this business from a call centre in Gibraltar. SJG was not liable to UK betting duty. Commercially there was no future for SJA with a UK based telebetting business, liable to betting duty, because a company paying betting duty could not compete with offshore gambling operations and remain financially viable following the Victor Chandler case.
These were the major areas of contention.
The taxpayers argued that s 720 only applies if there is (or would be without s 720) actual avoidance of income tax.
The FTT rejected both aspects of this argument. McGuckian had ruled that the scope of s 739 included both actual and intended avoidance and remained valid despite subsequent changes.
A person does not have to have made the transfer personally: all that is required is that a transfer was made; that makes the person who procures the transfer, as the Fishers did through their control of SJA, a ‘quasi-transferor’.
Parliament accepted the territorial limit of betting duty. It policed this by making it a criminal offence for a UK based business or agency to be involved in any way in placing bets with a non-resident bookmaker. The action taken by the family in setting up SJG was in line with Parliamentary intentions – the company incurred a real economic cost as a consequence. Further the taxpayer argued that duty was a cost borne by the punters. The FTT held that avoidance of duty did trigger the section and who suffered the duty was irrelevant.
The problem of apportionment of income is dealt with in the legislation. The FTT acknowledged that tracing and attributing income back to the transferors might be a difficult, complex exercise but once that issue had been dealt with the way was open to attribute income to multiple quasi-transferors.
That question was relevant in 2006/07, the last year involved in Fisher but subsequent changes to ITA 2007 have gone a long way to address this.
The FTT considered the motive defence under ICTA s 744 because the motive defence applied to transactions undertaken before 4 December 2005. This part of the FTT decision is of historic interest only due to the insertion of s742A by FA 2013.
The new ITA s 742A exempts “genuine transactions” made on or after 6 April 2012 that meet two conditions, A and B.
“Condition A is that –
(a) were, viewed objectively, the transaction to be considered to be a genuine transaction having regard to any arrangements under which it is effected and any other relevant circumstances, and
(b) were the individual to be liable to tax under this Chapter by reference to the transaction,
the individual’s liability to tax would, in contravention of Title II or IV of the Treaty on the Functioning of the European Union, constitute an unjustified and disproportionate restriction on a freedom protected under that Title.
Condition B is that the individual satisfies an officer of Revenue and Customs that, viewed objectively, the transaction must be considered to be a genuine transaction having regard to any arrangements under which it is effected and any other relevant circumstances.”
This case confirms that pre-FA 2011 doubts about the validity of ITA 2007 s 720 and ICTA 1988 s 739 were well grounded. The FTT ruled that a UK-resident UK-national was not afforded the protection of the EU treaty but a charge could not be imposed on one of the appellants who was an Irish national. Member States are free to discriminate against their own resident nationals but not against nationals of other Member States. The Tribunal ruling says “. . . nationals of one Member State are not precluded from relying on free movement rights just because the state imposing the restriction is their state of nationality and not another Member State.” (Nationality is not a concept we meet often in the context of UK tax which deals with residence and, less often, domicile. )
The appellants were also successful in challenging discovery assessments that HMRC had made outside the normal time limits. HMRC claimed to have reached a different conclusion from that formed before and so made a discovery. The FTT decided that HMRC could not be said to have formed a prior view that they subsequently found to be incorrect and that there was not enough evidence of discovery to justify discovery assessments just because HMRC did not know whether some facts were correct. Suspicion or “excessive zeal” in wanting to find out retrospectively were not sufficient to constitute discovery.
We expect that one or both parties will seek to take the decision to the Upper Tribunal.
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Thank you very much Dr Tom O’Shea for your great input.