Commissioners of Inland Revenue v Otto Octav Botnar
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MORRITT,LORD JUSTICE ALDOUS,LORD JUSTICE MANCE |
| Judgment Date | 23 June 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0623-12 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHRV 97/1691/3 |
| Date | 23 June 1999 |
[1999] EWCA Civ J0623-12
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE)
(Mr Justice Evans-Lombe)
Royal Courts of Justice
The Strand
London WC2
Lord Justice Morritt
Lord Justice Aldous
Lord Justice Mance
CHRV 97/1691/3
CHRV 98/1692/3
MR T IVORY QC (Instructed by Messrs Jeffrey Russell, London W1Y 0SX) appeared on behalf of the Appellant
MR J MUNBY QC and MR C TIDMARSH (Instructed by Inland Revenue, London WC2R 1LB) appeared on behalf of the Respondent
In 1974 the late Mr Otto Botnar (1913–1998) owned or controlled 301,888 shares in Datsun (UK) Ltd ("the Company"), which held the United Kingdom concession in respect of Datsun, later Nissan, cars, representing over 63% of its issued share capital. In March 1974 Mr Botnar exchanged 259,350 of those shares for shares in O Botnar Ltd ("OBL"), a company incorporated in Guernsey. Shortly thereafter he directed that the shares in OBL received in such exchange, which represented its entire share capital, should be held to the order of Botnar Establishment ("the Anstalt"), a Liechtenstein Anstalt set up on his behalf by Allgemeines Treuunternehmen. On 11th October 1974 Allgemeines Treuunternehmen, again on behalf of Mr Botnar, executed a settlement ("the Settlement"), to be governed by the law of Liechtenstein, in favour of classes of beneficiary from which Mr Botnar and his wife were specifically excluded but which contained unusually wide powers for the application of the capital by transfer to other settlements. The trust fund, as defined in the Settlement, included the funds then subject to the trusts of the Anstalt.
Thereafter the shares in the Company, subsequently renamed Nissan (UK) Ltd, were controlled by the trustees of the Settlement through one or more intermediate companies. The immediate holding company of the shares in the Company was from 1974 to 1979 OBL, from 1980 to 1984 European Motor Vehicles BV ("EMV"), a company incorporated in the Netherlands and from 1984 to 1988 European Motor Vehicles Corporation ("EMVC"), a company incorporated in Panama. From 1988 to 1990 Nissan (UK) Holdings Ltd, a company incorporated in the United Kingdom and a wholly owned subsidiary of EMVC, held the shares in the Company. Between 1974 and 1990 the Company declared and paid to its immediate parent £166.3m. by way of dividend.
In December 1990 the concession granted to the Company by the Japanese manufacturers of the relevant motor vehicles was terminated. In June 1991 the Inland Revenue seized the Company's books and records pursuant to an order made under s.20 Taxes Management Act 1970 and found amongst them a copy of the Settlement and a document ("the Lenz Memorandum") describing the origin and underlying purpose of the Settlement. In the light of those documents, and, no doubt, others, in January 1992 Mr Botnar was assessed to tax on the income of OBL, EMV and EMVC for the years 1974/75 to 1989/90 pursuant to the provisions of s.478 Income and Corporation Taxes Act 1970 and 739 Income and Corporation Taxes Act 1988 on the footing that he had power to enjoy the income of those non-resident persons.
Mr Botnar appealed against those assessments to the Special Commissioners. The Special Commissioners dismissed his appeal against the assessments for the years 1974/75 to 1984/85 on the ground that they were out of time because, as found by them, the conduct of Mr Botnar had been fraudulent or negligent. But they allowed his appeals against the assessments for all the years in question, except for 1988/89 and 1989/90, on the ground that Mr Botnar did not have the requisite power to enjoy the income of OBL, EMV or EMVC. In the case of 1988/89 and 1989/90 the amount of the assessment was reduced, but due to the special circumstances pertaining for those years, was not discharged altogether. The Revenue's appeal to the High Court by way of case stated was allowed by Evans-Lombe J on one only of the several points for which the Revenue contended. He did not deal with the other points, quite rightly, because they were not necessary to his conclusion of the appeal and Mr Botnar was neither present nor represented. Mr Botnar then appealed. The Revenue served a respondent's notice raising some of the other points argued by them before the judge. Mr Botnar died on 11th July 1998 and his appeal has been carried on by Dr Peter Lenz, a Swiss Lawyer, pursuant to an order of this court made on 18th January 1999. Before us both sides have been represented and all points have been fully argued. To explain what those points are it is first necessary to set out the relevant legislation and the terms of the Settlement.
The relevant legislation was first introduced by s.18 Finance Act 1936. It has been amended from time to time. The legislation in force in 1974 was contained in s.478 ICTA 1970. Minor amendments were made between then and 1988 but it is not suggested that they made any material difference to the points arising in this appeal. Likewise it is not suggested that the reenactment of those provisions in ss.739–746 ICTA 1988 made any relevant change. Accordingly it is both sufficient and convenient to set out only the provisions of s.478 ICTA 1970 as amended though when dealing with the separate points arising on the years 1988/89 to 1989/90 I will refer to the relevant provisions of ICTA 1988.
The relevant provisions of s.478 ICTA 1970 are the following:
"478 Provisions for preventing avoidance of income tax by transactions resulting in the transfer of income to persons abroad
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 whereof, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled out of the United Kingdom, it is hereby enacted as follows:-
(1) Where by virtue or in consequence of any such transfer, either alone on 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 out of 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 the purposes of the Income Tax Acts.
…..
(3) Subsections (1) and (2) of this section 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 subsection.
(4) For the purposes of this section, "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.
(5) An individual shall for the purposes of this section, be deemed to have power to enjoy income of a person resident or domiciled out of 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 the 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.
(6) In determining whether an individual has power to enjoy income within the meaning of this section, regard shall be had to the substantial result and effect of the transfer and any associated operations, and 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.
(7) For the purposes of this section, any body corporate incorporated outside the United Kingdom shall be treated as if it were resident out of the United Kingdom whether...
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