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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Carvill v Commissioners of Inland Revenue [2002] EWHC 1488 (Ch) (24 July 2002) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2002/1488.html Cite as: [2002] EWHC 1488 (Ch) |
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CHANCERY DIVISION
IN THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT
Strand, London, WC2A 2LL | ||
B e f o r e :
____________________
RORY KERR ![]() | ![]() | |
- and - | ||
THE COMMISSIONERS OF INLAND REVENUE | Defendants |
____________________
Mr Timothy Brennan QC & Mr Rabinder Singh QC and Mr Hugh McKay (instructed by Solicitor of Inland Revenue) for the Defendants
Hearing dates :11 June - 14 June 2002
Handdown Date: Wednesday 24 July 2002
____________________
Crown Copyright ©
Mr Justice Hart :
1987/88 £785,1421988/89 £517,512
1989/90 £854,964
1990/91 £591,998
1991/92 £445,617
1992/93 £559,770
“CHAPTER III
TRANSFER OF ASSETS ABROAD
739. Prevention of avoidance of income tax
(1) Subject to section 747(4)(b), the following provisions of this section shall have effect for the purpose of preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfer of assets by virtue or in consequence of which, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled outside the United Kingdom.
(2) Where by virtue or in consequence of any such transfer, either alone or in conjunction with associated operations, such an individual has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a person resident or domiciled outside the United Kingdom which, if it were income of that individual received by him in the United Kingdom, would be chargeable to income tax by deduction or otherwise, that income shall, whether it would or would not have been chargeable to income tax apart from the provisions of this section, be deemed to be income of that individual for all purposes of the Income Tax Acts.”
...........
“741. Exemption from sections 739 and 740
Sections 739 and 740 shall not apply if the individual shows in writing or otherwise to the satisfaction of the Board either -
(a) that the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer or associated operations or any of them were effected; or
(b) that the transfer and any associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.
The jurisdiction of the Special Commissioners on any appeal shall include jurisdiction to review any relevant decision taken by the Board in exercise of their functions under this section.
.........
742. Interpretation of sections 739 to 741
(1) For the purposes of sections 739 to 741 “an associated operation” means, in relation to any transfer, an operation of any kind effected by any person in relation to any of the assets transferred or any assets representing, whether directly or indirectly, any of the assets transferred, or to the income arising from any such assets, or to any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets.
(2) An individual shall, for the purposes of section 739, be deemed to have power to enjoy income of a person resident or domiciled outside the United Kingdom if -
(a) the income is in fact so dealt with by any person as to be calculated, at some point of time, and whether in the form of income or not, to enure for the benefit of the individual; or
(b) the receipt or accrual of the income operates to increase the value to the individual of any assets held by him or for his benefit; or
(c) the individual receives or is entitled to receive, at any time, any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the associated operations on that income and on any assets which directly or indirectly represent that income; or
(d) the individual may, in the event of the exercise or successive exercise of one or more powers, by whomsoever exercisable and whether with or without the consent of any other person, become entitled to the beneficial enjoyment of the income; or
(e) the individual is able in any manner whatsoever, and whether directly or indirectly, to control the application of the income.
(3) In determining whether an individual has power to enjoy income within the meaning of subsection (2) above -
(a) regard shall be had to the substantial result and effect of the transfer and any associated operations, and
(b) all benefits which may at any time accrue to the individual (whether or not he has rights at law or in equity in or to those benefits) as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.
.........
(9) For the purposes of sections 739 to 741 -
(a) a reference to an individual shall be deemed to include the wife or husband of the individual;
(b) “assets” includes property or rights of any kind and “transfer”, in relation to rights includes the creation of those rights.
............”
(1) In 1976 the claimant incorporated R K Carvill
& Co Ltd (“
Carvill
UK”), and
Carvill
UK commenced trading as a reinsurance broker placing US reinsurance business in the London market.
(2) In 1977 the claimant established a second UK company, R K Carvill
(Holdings) Ltd (“Holdings”) which acquired 100% of the share capital of
Carvill
UK.
(3) In 1980 the claimant established another company, R K Carvill
(International) Ltd (“International”). The share capital in International, which was incorporated in Bermuda, was acquired by Holdings. The share capital of Holdings was owned as to 59% by the claimant and 41% by other parties (“the minority shareholders”);
(4) In December 1980 the claimant acquired from Holdings 51% of its shareholdings in International.
(5) Under a scheme which came into effect on 1 January 1983 the claimant’s 59% holding in Holdings was exchanged for an equivalent shareholding in a new Bermudan company R K Carvill
(International Holdings) Ltd (“International Holdings”). The same applied to the minority shareholders’ 41% holding.
(6) In 1985 the claimant purchased a further 10% of the shares in International Holdings from one of the minority shareholders.
(7) In December 1986, International Holdings purchased from the remaining minority shareholders their shares in itself, with the result that the claimant became entitled to 100% of the issued share capital of International Holdings.
(8) In October 1987 Holdings paid a dividend of £2.38m to International Holdings, which itself shortly afterwards paid a dividend of approximately the same amount to Mr Carvill. None of the group companies had previously paid a dividend, but dividends have been paid by Holdings to International Holdings and by the latter to the claimant in a similar manner in all subsequent years. The claimant is domiciled in the Republic of Ireland.
“2. Whether the Defendants can rely upon the First Decision in respect of the appeals against the section 739 assessments for the Earlier Years as a complete defence to the Claim for Restitution to recover the full amount paid against the Defendants' claim to the income tax and statutory interest for those years? ”
Assumptions
This issue should be decided upon the assumption that the following facts and issues are either admitted or established at trial:
2.1.1. In the First Decision the Special Commissioner, Mr Everett, found that the Claimant had not discharged the onus of proof of showing that the transfer of assets (together with any relevant associated operations) made by him were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation;
2.2. the Claimant appealed by way of Case Stated against the First Decision but subsequently abandoned his appeal;
2.3. in the Second Decision the Special Commissioner, Dr Avery-Jones C.B.E., disagreed with the conclusion reached in the First Decision and made positive findings of fact that the transfer of assets and associated operations relied upon by the Defendants in relation to both the Earlier Years and the Later Years were bona fide commercial transactions, were not designed for the purpose of avoiding liability to taxation and did not have as even one of their purposes the avoidance of liability to taxation; in the premises, Dr Avery-Jones decided that Section 741 applied to such transfer of assets and associated operations;
2.4. the Second Decision was based on additional and different information and analysis from the First Decision as appears from the said decisions, and in particular:
2.4.1. the Second Decision was reached after a longer and more thorough investigation into the facts during which Dr Avery-Jones had the benefit of hearing more witnesses and having access to documentary evidence not before Mr Everett;
2.4.2. Mr Everett had drawn adverse inferences from the absence of certain documents which were not available to the Claimant at the time of the First Appeal but which when analysed during the course of the Second Appeal were concluded by Dr Avery-Jones not to found such adverse inferences and in fact to contradict the case put forward by the Defendants;
2.4.3. Mr Everett drew adverse inferences about the Claimant’s credibility from a document, which was not put to him in evidence and was not relied upon by the Defendants, the contents of which document the Defendants subsequently conceded probably represented a typographical error;
2.4.4. By contrast with the First Decision, for the purposes of the Second Appeal, the Defendants were required to state in advance the grounds on which it was contended that the relevant transfer of assets and associated operations were not bona fide commercial transactions and/or had as their purpose or one of their purposes the avoidance of liability to taxation;
2.5. No appeal has been entered against the Second Decision and the chargeability of the Claimant to income tax for years of assessments falling after the Later Years has been determined upon the basis that Section 741 applies to the same transfer of assets and associated operations relied upon by the Defendants in support of their claims to tax and interest for the Earlier Years;
2.6. Dr Avery-Jones concluded that in relation to the same transactions as had been considered by Mr Everett Section 741 had always applied to the transfer of assets and associated operations relied upon by in respect of the Earlier Years and so Section 739 did not apply to deem the dividend income paid to International Holdings in respect of its shares in Holdings to be the income of the Claimant.”
“(6) After the notice of assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts”
Section 46(2) TMA provided:
“Save as otherwise provided in the Taxes Acts, the determination of the General Commissioners or the Special Commissioners in any proceedings under the Taxes Acts shall be final and conclusive.”
“3. If the First Decision would not provide a complete defence to the Claim for Restitution if all the assumptions set out in sub-paragraphs 2.1 and 2.3-2.6 above were not established at trial, would the First Decision provide a complete Defence if some of such assumptions were not established at trial and if so which are those assumptions?”
This question does not arise in the light of my decision on Issue 2.
“4. In making his claim for restitution can the Claimant seek to go behind the First Decision?”
“5. Can the Second Decision, in respect of the same taxpayer but for different years of assessment, and based on different evidence, overturn or otherwise affect the First Decision?”
The answer is inevitably “no” in the light of my decision on Issue 2.
Issues Relevant to the Claim for Judicial Review
“6. Can the Defendants rely upon the terms of the First Decision as a complete defence to the Claim for Judicial Review seeking recovery of the full amount of the sums paid by the Claimant in respect of the Defendants' claim for income tax and statutory interest for the Earlier Years?
Additional Assumptions
This issue should be determined upon the assumption that, in addition to the [assumptions] described at 2.1-2.6 above, the following facts and matters were admitted or established at trial:
6.1 The Defendants have not appealed against the Second Decision and are acting for future years upon the basis that the Second Decision was correct in relation to the application of Section 741 to the transfers of assets and associated operations relied upon by the Defendants in support of the income tax charge for the Earlier Years.
6.2 No public law wrong is alleged by the Claimant other than the unfairness said to arise from the Defendants’ continued reliance on the First Decision and/or an alleged error of law by the Defendants as to whether the Claimant was properly chargeable in respect of the income attributable to the Old Minority Shares.”
“The threshold of public law irrationality is notoriously high. It is to be remembered that what may seem fair treatment of one taxpayer may be unfair if other taxpayers similarly placed have been treated differently. And in all save exceptional circumstances the Revenue are the best judge of what is fair. It has not, however, been suggested that the detailed history described above has any parallel. The circumstances are, literally, exceptional. I cannot conceive that any decision-maker fully and fairly applying his mind to this history, and in particular to factors (1) to (10) listed in section IV above, could have concluded that the legitimate interests of the public were advanced, or that the Revenue’s acknowledged duty to act fairly and in accordance with the highest public standards was vindicated, by a refusal to exercise discretion in favour of Unilever. I share the judge’s conclusion that this refusal, if fully informed, was so unreasonable as to be, in public law terms, irrational.”
“7. If the First Decision would not provide a complete defence to the Claim for Judicial Review if all the assumptions set out in sub-paragraphs 2.1-2.6 and 6.1-6.2 above were established at trial, would the First Decision provide a complete defence if some of such assumptions were not established at trial and if so which are those assumptions?”
“Issues Relevant to Both Claims
8. Whether the Defendants can rely on the First Decision in respect of the appeals against the assessments for the Earlier Years as a complete defence to the Claimant’s claims made in the Restitution Claim and the Claim for Judicial Review to recover the amounts paid by him in respect of the income tax and statutory interest charged on the dividend income attributable to the Old Minority Shares?
Assumptions
This issue should be determined upon the assumption that the following facts and issues are admitted or established at trial:
8.1 In the appeal against the assessments for the Earlier Years the Defendants did not contend nor was it found by the Special Commissioner that the Claimant had procured the transfer of the Old Minority Shares to International Holdings;
8.2 the amount of income tax chargeable in the event that Section 741 did not apply was agreed by the parties and was not determined by the Special Commissioner;
8.3 such assessments were contrary to the Defendants’ then unpublished practice and/or understanding of the law to the extent that the assessments sought to charge the Claimant to income tax on income which was attributable to the Old Minority Shares unless it could be established that the Claimant had procured the transfer of the Old Minority Shares by the Old Minority Shareholders;
8.4 the Officers of the Inland Revenue having conduct of the appeal on behalf of the Defendants either knew or, with the exercise of reasonable care, should have known:
8.4.1 the facts at 8.3 above; and/or
8.4.2 the Defendants were not alleging that the Claimant had procured the transfer of the Old Minority Shares;
8.4.3 the Claimant and his advisers were or were unlikely to be aware of such internal practice and, in the absence of a finding by the Special Commissioner that the Claimant had procured the transfer of the Old Minority Shares, would be acting under a mistake in agreeing that an amount of income tax calculated by reference to dividends paid in respect of the Old Minority Shares would be chargeable in the event that Section 741 did not apply;
8.5 In the Second Decision the Deputy Special Commissioner, Dr Avery-Jones C.B.E, (a) expressly found that the Claimant had not procured the transfer of the Old Minority Shares; and (b) was correct to do so.”
“The claimant and the Inland Revenue agreed (without reference to the Special Commissioner) the amount of income tax which would be payable in the event that the section 741 Defence did not apply. The figures were agreed on the basis that the Appellant was chargeable in respect of the full amount of the dividend income paid by Holdings. The claimant agreed the figures put forward by the Inland Revenue in the belief that if section 739 did apply it entitled the Inland Revenue to charge on him [sic] 100% of the dividend income because at the time when such income arose he had “power to enjoy” 100% of the income of International Holdings”
“9. If the First Decision would not provide a complete defence if all the assumptions set out in paragraph 8 were established at trial, would the First Decision provide a complete defence if some but not all such assumptions were not established at trial and if so which are those assumptions?”
“10. On a proper construction of Section 739 was the Claimant chargeable on income attributable to the Old Minority Shares?
Assumptions
10.1 The Claimant did not procure the transfer of the Old Minority Shares to International Holdings;
10.2 Section 741 did not apply to such transfer of assets.”
“11. If, as a result of the answer to issue 10, Section 739 does not deem the relevant income from the Old Minority Shares to be the Claimant’s income and the Claimant is not liable to income tax on such income, are the Defendants justified in retaining the sums paid in respect of that income, by reference to the practice and the application of the practice as described in paragraphs 15-18 of the Witness Statement of Elaine Povey made on 14th December 2001 and Exhibit EP1 and if so on what basis?”
“12. Whether the Human Rights Act 1998 has any application to the Claimant's tax liabilities in respect of final appeals concerning years of assessment ending prior to 2 October 2000 where those appeals were themselves final before 2 October 2000?
13. Whether the Defendants in refusing to repay the whole or any part of the monies paid to them by the Claimant in respect of the Earlier Years are acting contrary to Article 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms?
14. Whether the Claimant is entitled to compensation by virtue of sections 6, 7 and 8 of the Human Rights Act 1998 for the Defendants' refusal to make such a refund?
Assumptions
Issues 13 and 14 should be decided upon the assumption that:
14.1 in respect of the Claimant’s claim to recover the amount paid by him, the facts and matters referred to in sub-paragraphs 2.1-2.6 and 6.1-6.2 above are established or admitted at trial;
14.2 in respect of the Claimant’s claim to recover the amount paid by him in respect of the Defendants’ claim for income tax and statutory interest in respect of the dividend income attributable to the Old Minority Shares, the facts and matters referred to in paragraph 8 above are admitted or established at trial.
15. If the answers to issues 13 and 14 above would be in the affirmative but would not be so if one or more of the assumptions referred to in sub-paragraphs 14.1-14.2 were not admitted or established at trial, which are those assumptions?”