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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Huitson, R (on the application of) v HM Revenue and Customs  EWCA Civ 893 (25 July 2011)
Cite as:  STI 2307,  BTC 456,  QB 489,  NPC 91,  EWCA Civ 893,  2 WLR 490, 14 ITL Rep 90,  STC 1860
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE HON MR JUSTICE KENNETH PARKER
CO/10012/2008,  EWHC 97 (Admin)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE SULLIVAN
LORD JUSTICE TOMLINSON
| R(ROBERT HUITSON)
|- and -
|HER MAJESTY'S REVENUE AND CUSTOMS
MR RABINDER SINGH QC and MR CLIVE SHELDON (instructed by the Solicitor for HMRC) for the Respondents
Hearing dates : 2nd, 3rd , 4th November 2010
Crown Copyright ©
Lord Justice Mummery :
"96. ….the challenged legislation, although having retrospective effect, is in the relevant circumstances proportionate and compatible with article 1 of the First Protocol to the Convention."
"16. It is also immediately plain that the tax avoidance scheme, if it worked, would be singularly attractive to any person in the position of the claimant, that is, any resident of the United Kingdom, who, as a self-employed person, carried on a trade or profession here. So long as end users were content to contract with an intermediary, rather than with the actual provider of the services, and so long as professional rules did not preclude such intermediation (barristers, for example, need not apply) any UK self-employed trader could reduce his or her taxable income to a tiny fraction of what it would otherwise have been. I accept that very many would not do so, taking the view that the tax avoidance scheme was wholly artificial and perhaps thinking that as UK residents they should be paying UK income tax on the profits of their trade or profession. But, and the figures produced by HMRC confirm this, a substantial number would be attracted. By the time the challenged legislation was enacted there were about 2,500 taxpayers exploiting similar arrangements, and the amount of income tax at stake had risen to £100m."
"30. …Whatever the true meaning of the Jersey Double Taxation Arrangement, there was a wider rationale in terms of public policy: UK residents should pay UK income tax on the profits of any trade or profession; and a double taxation arrangement, intended to relieve from double taxation, should not be used as an instrument either to avoid all taxation or to reduce it to well below the level that would be applicable to the relevant income in the country of residence."
"33. It seems to me that these two features emphasised the importance that Parliament attached to the public policy to which I have referred. In my view, these events sent out a clear signal to taxpayers and their advisers that the legislature would be very likely to take effective and decisive steps to counter, even with retrospective measures, any attempt, through artificial arrangements, to take advantage of a double taxation agreement, in particular paragraph 3(2) of the double taxation arrangements with Jersey and the Isle of Man, in such a way that a UK resident would avoid, or very substantially reduce, the UK income tax on the profits of his or her trade or profession that would, in the absence of the artificial arrangements, otherwise have been payable."
"72. … I do not believe that the outcome of any legal proceedings in respect of the arrangements would have been a foregone conclusion. They would, I believe, have been complex, protracted and costly."
Grounds of appeal
A. Proportionality and policy factors
" 77… Parliament, in my view, was entitled to conclude that a rigorous application of the policy referred to.. above was called for; that legislation was needed to put the effect of the DTA beyond doubt, and to prevent taxpayers resident in the United Kingdom from exploiting the DTA in a way that would enable them substantially to reduce income tax that would otherwise be properly payable on income from the exercise of a trade or profession. Parliament was also entitled, having regard to the background I have set out, to legislate with retrospective effect, particularly in order to ensure a "fair balance" between the interests of the great body of resident taxpayers who paid income tax on their income from a trade or profession in the normal way, and the taxpayers, like the claimant,who had sought to exploit, by artificial arrangements, the DTA, in plain contravention of the important public policy set out above, and in full knowledge of how Parliament had maintained that public policy after Padmore's case."
B. Tax efficacy of the scheme and legitimate expectation
"83. …It remained, for all the reasons already stated, within the permissible area of discretionary judgment of Parliament to legislate, with retrospective effect, to prevent taxpayers from using, by wholly artificial arrangements, the DTA for a purpose for which it was not intended, so as to defeat the public policy to which I have referred earlier. The importance of the public policy had already been brought home to taxpayers and their advisers by the legislative response following Padmore's case. HMRC had given no assurance that any legislative response in this case would be prospective only. In my view, even if the arrangements indisputably worked under the DTA and the legislation then applicable, taxpayers could reasonably have expected that Parliament would respond in a way that ensured fairness generally between all taxpayers resident in the United Kingdom, and that maintained the relevant policy. Given the background, and the need to ensure fairness between all taxpayers, taxpayers could also have reasonably expected that the legislative response would have retrospective effect, as turned out to be the case."
"The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically."
C. HMRC delays and conduct affecting fair balance: retrospective legislation without prior test litigation
" 85. …The public policy was of such paramount importance that legislation was necessary in any event to put the position beyond all doubt and to maintain the relevant public policy. Furthermore, for reasons already given, such litigation would probably have been protracted, costly and uncertain. At no time did HMRC indicate to affected taxpayers, including the claimant, that they could safely rely upon the arrangements. On the contrary HMRC consistently maintained that the arrangements did not work, and advised taxpayers to pay on account the income tax which HMRC said was properly due. Any prudent taxpayer who followed that advice would not now be prejudiced by the retrospective effect of the legislation. The circumstances are wholly different from those in Beyeler v Italy (2000) 33 EHRR 1224, where the public authorities by their conduct over many years had led the applicant to believe that the state would not exercise a right that it enjoyed, and the later exercise of the right conferred a specific unjust enrichment on the state at the expense of the citizen.
86. Nor did HMRC represent, expressly or even impliedly that legal proceedings would first be pursued before enactment of any legislation, or that any legislation would not have retrospective effect. In so far as taxpayers may have relied upon the route previously travelled by the Inland Revenue and the legislature in Padmore's case, they did so at their own election and risk."
D. No pre-legislation assessment of impact of retrospectivity on taxpayers
"93. Given the background, I see no justifiable basis for saying that HMRC was required to investigate what taxpayers had in fact done: whether they had, for example, prudently reserved for any future liability, or had spent the net income on present consumption or had invested in illiquid assets that, particularly in the light of the fall in asset prices following the credit crisis in 2008, could not now be realised to meet, in whole or in part, the liabilities that would be unequivocally imposed by section 58(4) of the 2008 Act."
Lord Justice Sullivan:
Lord Justice Tomlinson: