Commissioners for HM Revenue and Customs v Fisher and another
| Jurisdiction | England & Wales |
| Judge | Lady Rose,Lord Reed,Lord Hodge,Lord Sales,Lord Stephens |
| Judgment Date | 21 November 2023 |
| Neutral Citation | [2023] UKSC 44 |
| Court | Supreme Court |
[2023] UKSC 44
Lord Reed, President
Lord Hodge, Deputy President
Lord Sales
Lord Stephens
Lady Rose
Counsel — Fishers
Philip Baker KC
Rory Mullan KC
Imran S Afzal
(Instructed by Sharpe Pritchard LLP)
Counsel — HMRC
David Ewart KC
Brendan McGurk
Barbara Belgrano
Ben Elliott
Emilia Carslaw
(Instructed by HMRC Solicitors Office & Legal Services (Stratford))
Heard on 19 and 20 July 2023
Lady Rose ( with whom Lord Reed, Lord Hodge, Lord Sales and Lord Stephens agree):
The taxing provisions which are at the centre of this appeal have been the subject of litigation in the senior courts almost from the moment they were first introduced into the tax code by the Finance Act 1936. They have been amended over the decades and re-enacted in consolidating legislation. But they have continued to perplex and concern generations of judges faced with the task of construing them.
The basic idea behind the provisions is expressed in the tag given to them – the transfer of assets abroad code or TOAA. The paradigm case in which they impose a tax charge is where an individual resident in the United Kingdom transfers assets, for example, shares in a company or partnership, to a person overseas so that instead of that individual receiving and paying tax on income arising from the assets, such as dividends from those shares, the overseas company either retains the income or transfers it to the individual in the form of capital. The effect, broadly, of the provisions is that the income received by the overseas person is deemed to be the income of the individual who is then charged tax on it, whether or not he has actually received any of that income within the jurisdiction. An early case in which the provisions came before the House of Lords involved just such a paradigm sets of facts: Latilla v Inland Revenue Comrs [1943] AC 377, (1943) 25 TC 107. Their Lordships in that case were scathing in their dismissal of the arguments put forward by the taxpayers seeking to construe the provisions in a way which left their ingenious methods of avoiding tax intact. Viscount Simon LC in the first paragraph of his speech in Latilla said that:
“… one result of such methods, if they succeed, is, of course, to increase pro tanto the load of tax on the shoulders of the great body of good citizens who do not desire, or do not know how, to adopt these manoeuvres.”
Lord Greene MR made similar comments in Lord Howard de Walden v Inland Revenue Comrs [1942] 1 KB 389 (“ Lord Howard de Walden”). In that case, the issue was whether the amount brought into tax for the UK resident individual was (a) limited to the income that he was in fact entitled to, or able to, enjoy or (b) comprised all the income of the overseas company to which the assets had been transferred or (c) comprised only the income of that overseas company which was traceable to the assets transferred. In concluding that it was the second, largest amount, Lord Greene MR said that section 18 of the Finance Act 1936 was a penal provision. He referred to the “battle of manoeuvre” waged between the legislature and tax avoiders whose skill, determination and resourcefulness had often worsted the legislature. He regarded the provisions as an attempt to put an end to the struggle by imposing the severest penalties: p 397.
The problems have arisen, however, when the circumstances of the taxpayer do not fall squarely within that paradigm case. It has not been clear who, apart from the Lord de Waldens of this world, is caught. A taxpayer who falls within the provisions can be charged to tax on a substantial amount of income that they have not actually received and which bears no relation to the value of the assets initially transferred. In the later cases, the judicial criticism has focused not on the taxpayers but on the legislation itself or on the Commissioners' expansive interpretation of that legislation. Not every judge has endorsed Walton J's description of the Solicitor-General's role as like that of Count Dracula when putting forward a construction of the legislation which, the judge thought, contradicted the most rudimentary notions of justice and fair play ( Vestey v Inland Revenue Comrs (No 2) [1979] Ch 198, 215). But many judges have used strong words to deprecate different elements of the taxing provisions and how the Commissioners have sought to enforce them.
The appeals of the members of the Fisher family with which the court is now concerned have highlighted again the potential breadth of the TOAA code's application and the difficulty of working out how it is intended to apply. The appeal at every stage of the proceedings has raised many difficult issues about the meaning of the code which was set out in sections 739 to 746 of the Income and Corporation Taxes Act 1988 (“ ICTA 1988”). The key question, however, arises from the fact that the transaction which HMRC identify as being the transfer of assets triggering the application of the code was the sale of a business operated by a UK incorporated company, the shares of which were owned by the Fishers, to a company incorporated in Gibraltar which the Fishers also owned. The provisions only apply to impose a tax charge on individuals and it has been common ground throughout that “individuals” means natural persons and not bodies corporate. None of the Fishers held a majority interest in either the transferor or the transferee company. Does that mean that the Fishers cannot be caught by the code at all?
I have concluded that the Fishers are not caught by the taxing charge on which HMRC have relied in issuing their assessments to tax. In light of that, this judgment focuses on that issue and does not need to explore the many other issues on which we received helpful submissions and with which the tribunals and court below grappled.
The provision under which the Fishers have been charged to tax is section 739 ICTA 1988 (as amended). The tax years to which the assessments under appeal relate are 2000/2001 to 2007/2008. The rewritten version of the code set out in the Income Tax Act 2007 applies to the final year of assessment at issue. It is agreed, however, that any differences do not affect the issues in this case and the parties have addressed the case on the basis of the version of the provisions as they stood between March 1997 and April 2007.
First, there is section 739 which is the primary charging section with which we are concerned. The relevant provisions are:
“ 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 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 United Kingdom.
(1A) Nothing in subsection (1) above shall be taken to imply that the provisions of subsections (2) and (3) apply only if—
(a) the individual in question was ordinarily resident in the United Kingdom at the time when the transfer was made; or
(b) the avoiding of liability to income tax is the purpose, or one of the purposes, for which the transfer was effected.
(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.
(3) Where, whether before or after any such transfer, such an individual receives or is entitled to receive any capital sum the payment of which is in any way connected with the transfer or any associated operation, any income which, by virtue or in consequence of the transfer, either alone or in conjunction with associated operations, has become the income of a person resident or domiciled outside the United Kingdom 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.”
Some commentary on that provision is helpful at this point. Subsection (1) broadly reproduces what started out as a preamble to section 18 of the Finance Act 1936, setting out the purpose of the provision before subsections (1) to (7) of section 18. It was re-enacted as a preamble rather than as a subsection in later versions of the code until it was made the first subsection of section 739 ICTA 1988. It sets out the tax avoidance purpose of the charging provision.
An important issue in this appeal and in previous cases is:
(i) what does subsection (1) mean by specifying that the tax avoidance by individuals is “by means of transfers of assets”; and
(ii) how does that affect the requirement in the charging provision in subsection (2) that “such an individual” has power to enjoy the income of the overseas person. How much of the description of the individual in subsection (1) is imported into subsection (2) by the word “such” – is it just that the individual is...
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