Carvill v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 21 December 1996 |
| Date | 21 December 1996 |
| Court | Chancery Division |
Chancery Division.
Sir John Vinelott.
Andrew Thornhill QC and Giles Goodfellow (instructed by Slaughter and May) for the taxpayer.
Alan Moses QC and Rabinder Singh (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Edwards v Bairstow (HMIT) ELR[1956] AC 14
Consolidated Goldfields plc v IR Commrs TAXTAX(1990) 63 TC 333; [1990] BTC 263
Income tax - Appeal dismissed by special commissioner - Jurisdiction of court to remit case stated to special commissioners - Whether case would be remitted to commissioner to clarify findings and find further facts in relation to transfers of assets abroad - Taxes Management Act 1970 section 56 subsec-or-para (6)Taxes Management Act 1970, s. 56(6).
This was an application by the taxpayer to remit a case to a special commissioner under the Taxes Management Act 1970 section 56 subsec-or-para (6)Taxes Management Act 1970, s. 56(6). The taxpayer had appealed against the commissioner's decision, but as a preliminary issue he sought an order by the court that the commissioner be directed to consider whether certain findings of fact were established by the evidence adduced and that the commissioner make further findings of fact.
In 1977, following a change in the Lloyd's rules relating to foreign ownership of Lloyd's brokers, the taxpayer and a colleague formed a UK company ("Carvill UK") with a view to placing US treaty reinsurance business in the UK on behalf of US brokers. Carvill UK became a Lloyd's broker in 1979. The taxpayer also established another UK company ("Holdings"), which acquired all the shares of Carvill UK in exchange for its own shares.
To deal with increased US business, the taxpayer established a company in Bermuda ("International") which was acquired by Holdings in May 1980 and started to trade in June 1980. In December 1980 the taxpayer acquired 51 per cent of the shares of International from Holdings.
The taxpayer applied for retrospective clearance under theIncome and Corporation Taxes Act 1970 section 482 subsec-or-para (1)Income and Corporation Taxes Act 1970, s. 482(1)(d) that International was formed with the intention that the taxpayer, the individual mainly responsible for obtaining its US business, should own 51 per cent of the shares. The taxpayer entered into a contract of employment with International covering duties performed outside the UK. He was also employed by Carvill UK.
In 1982 a ruling was obtained from the Revenue that the taxpayer was not domiciled in the UK so that income from a foreign source was liable to tax in the UK only if remitted.
A reconstruction of the group took effect on 1 January 1983. A new company, "International Holdings", was incorporated in Bermuda and the shares of Holdings were exchanged for its shares. The taxpayer held 59 per cent of the issued shares of International Holdings carrying 64 per cent of the voting rights. As part of the reorganisation another company, "Personal Services" was incorporated in Jersey, of which the taxpayer was the sole shareholder, to provide the taxpayer's services to the group.
Until 1987 no Carvill company had paid a dividend. Profits had been distributed as salaries and bonuses to the taxpayer and others on a profit sharing basis. But on 1 October 1987 a dividend of £2,380,000 was paid by Holdings to International Holdings. Shortly afterwards a similar amount was paid by International Holdings to the taxpayer. Thereafter dividends were paid by International Holdings to the taxpayer annually.
The taxpayer appealed against estimated assessments to income tax for the years 1987-88 to 1992-93 in respect of the dividends he had received. The assessments were made on the footing that the exchange of the shares of Holdings for the shares of International Holdings constituted a transfer of assets abroad falling within theIncome and Corporation Taxes Act 1988 section 739Income and Corporation Taxes Act 1988, s. 739.
The special commissioner rejected the taxpayer's contention that he was able to bring himself within the exception provided by Income and Corporation Taxes Act 1988 section 741s. 741 of the Act. The taxpayer had contended that the transfer in question was not effected for the purpose of avoiding liability to tax. The establishment of an offshore company was a bona fide commercial transaction necessary to attract the support of important and influential individuals operating in the US reinsurance market.
Held, refusing to remit the case to the special commissioner:
1. In principle, the findings of fact were for the commissioners; they could not be instructed to find facts, nor as to the manner in which they expressed their findings; and the findings of fact should cover the matters relevant to the appeal. An application to remit should show that the desired findings were material to some tenable argument, that they were reasonably open on the evidence adduced and not inconsistent with any findings already made. If the case as stated was full and fair, in that its findings broadly covered the territory desired to be dealt with by the proposed additional findings, the court should be slow to send the case back. Consolidated Goldfields plc v IR Commrs TAX[1990] BTC 263 applied.
2. Further, nothing was to be gained by remitting a case stated solely for the purpose of adding material which might be obtained from the documents or an agreed note of the oral evidence. No purpose was served by remitting a case stated to the commissioners for them to spell out what was implicit or followed as a matter of logical or practical necessity from their findings and conclusions. Finally, the issue which most frequently came before the court on a case stated was whether an inference, often referred to as an inference of secondary fact, could or could not be drawn from the primary facts admitted or found by the commissioners. The court could interfere only if it could be said that the commissioners' conclusion was an impossible one.
3. All the findings sought to be incorporated in the commissioner's decision would be either inconsistent with findings already made or unnecessary to dispose of the appeal. Accordingly the directions sought went beyond the proper invocation of the court's jurisdiction to remit a case stated to the special commissioners.
Sir John Vinelott: In this application Rory Kerr Carvill ("the taxpayer") seeks an order remitting a case stated by Mr T H K Everett, one of the special commissioners, with directions under para. 1 that the special commissioner consider whether any of the facts set out in part I of the schedule to the application was established by the evidence adduced before the special commissioner; under para. 2, that the special commissioner makes further findings in relation to any further facts which were established by the evidence either in the terms set out in part I of the schedule or in such other terms as the special commissioner thinks appropriate, and to state which of the facts set out in part I of the schedule the special commissioner does not consider were established by the evidence; under para. 3, that the special commissioner identifies with proper particularity the oral and documentary evidence relied on by him for the findings of fact set out in part II of the schedule; under para. 4, that the special commissioner finds as a fact whether the taxpayer was at any time asked to comment on any discrepancy found by the special commissioner to exist between the evidence given by him and the minute of a meeting of the directors of the company R K Carvill (International Holdings) Ltd, dated 15 February 1984; and, under para. 5, that the special commissioner states what events were comprised within "the chain of events leading to the declaration of the first dividend" referred to by the special commissioner in his decision and to say what inference he drew from "the coincidence" of that chain of events.
The facts which the special commissioner is asked to consider and in relation to which further findings are sought are 35 in number, and the text runs to some 20 pages. I shall have to say something about the majority of the further findings which are sought. However, it would add unduly to the length of this judgment were I to repeat each of the further findings. I shall therefore refer to them by number without citing them in full. To make this judgment intelligible, the notice of motion will have to be annexed to it (see p. 85 post).
Income and Corporation Taxes Act 1988 section 739Section 739 of the Income and Corporation Taxes Act 1988 is designed to counter the avoidance by individuals ordinarily resident in the UK of liability to income tax by means of transfers 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 UK. Subsection (2) provides:
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.
It was not in question before the special commissioner that an exchange of shares of a company resident in the UK, R K Carvill (UK) Ltd, by shareholders ordinarily resident in the UK, including the taxpayer - the majority shareholder of shares of R K Carvill (International Holdings) Ltd, a company incorporated and...
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