Commissioners of Inland Revenue v Vas
| Jurisdiction | England & Wales |
| Judgment Date | 08 December 1989 |
| Date | 08 December 1989 |
| Court | Chancery Division |
Chancery Division.
Vinelott J.
Mr Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr Kevin Prosser (instructed by Chatterton's, Horncastle) for the taxpayer.
The following case was referred to in the judgment:
Jeffs (HMIT) v Ringtons Ltd TAXTAX(1985) 58 TC 680; [1985] BTC 585
Income tax - Double taxation relief - Hungary - US - Exemption from UK tax for visiting teachers and researchers - Hungarian resident visited UK for purposes of research at university - Exemption limited to period not exceeding two years from the date "he first visits" the UK - Whether exemption covered successive visits not exceeding two years -SI 1978/1056 section 21 subsec-or-para (1)Double Taxation Relief (Taxes on Income) (Hungary) Order 1978 (SI 1978/1056), art. 21(1); SI 1980/568 section 20 subsec-or-para (1)Double Taxation Relief (Taxes on Income) (United States of America) Order 1975 (SI 1980/568), art. 20(1).
This was an appeal by the Crown against the decision of a special commissioner that the two-year exemption from tax on the remuneration of a researcher visiting one of the contracting states provided by theSI 1978/1056 section 21 subsec-or-para (1)Double Taxation Relief (Hungary) Order 1978 (SI 1978/1056), art. 21(1), or theSI 1978/568 section 20Double Taxation Relief (United States of America) Order 1980 (SI 1980/568), art. 20 which was in similar terms, might be claimed for any number of successive visits each lasting less than two years.
The taxpayer was a Hungarian citizen resident in Hungary immediately before arriving in the UK on 21 January 1979 to take up a post for two years as a research associate at the University of Newcastle-upon-Tyne. He returned to Hungary on 22 January 1981 and subsequently took up two further appointments in 1981-82 and 1982-83. His visits in connection with those two appointments did not exceed two years.
The taxpayer accepted that he was not entitled to relief in respect of the first visit which lasted two days longer than two years but claimed relief in respect of his earnings under the second and third appointments. That claim was refused and the taxpayer appealed to a special commissioner who allowed the appeal on the grounds that the exemption applied to all visits consequent on separate appointments lasting less than two years.
It was common ground that the first part of SI 1978/1056 section 21 subsec-or-para (1)art. 21(1) showed that if a visit exceeded two years, the exemption was not available. The question was what effect was to be given to the words "not exceeding two years from the date he first visits" at the end of the article.
The case for the Crown was that those words were designed to deal with the case where the taxpayer made more than one visit to one of the contracting states for one of the specified purposes. The clock started running on the arrival of a Hungarian resident for the first time. Remuneration derived from all visits during a two-year period from that date would be exempt.
The Crown's alternative construction was that the clock started running when the taxpayer's first visit began. It stopped running when he returned to Hungary but would start running again when he returned to the UK. That process would continue until his visits in aggregate amounted to two years. The exemption would be available even though the visits took place over a period of more than two years from the start of the first visit.
The taxpayer contended that the words "from the date he first visits" were introduced into the US treaty in 1975 when the exemption was extended to research which might not be tied to one place. The words did not limit the scope of the article but were intended to apply to a researcher whose visit did not co-incide with the time he was working on a project for which he was remunerated.
Held, allowing the Crown's appeal:
1. Remuneration for work done outside the UK by a foreign visitor would not normally be taxable under Sch. E, Case I. It was unlikely that the negotiators of the treaty had in mind the possibility that a researcher's visit might conceivably be so timed that remuneration received for work done outside the UK might fall within Case II or Case III.
2. The words "from the date he first visits" in both treaties could only have been designed to limit the exemption to the period of two years after a Hungarian or US resident first visited the UK for one of the specified purposes. It could not have been intended that any number of visits limited to two years throughout a taxpayer's working life would be exempt from UK tax provided that he resumed his residence in Hungary or the US for a short period between each of them. It was not necessary to decide in the present case whether the Crown's primary or alternative construction was correct.
1. On 12 July 1988 I heard the appeal of Dr Vas against a decision by the Board of Inland Revenue in respect of his claim to relief from tax pursuant to Income and Corporation Taxes Act 1970 section 497 subsec-or-para (1)sec. 497(1) of the Income and Corporation Taxes Act 1970. The Board's decision was given in writing on 25 February 1987.
2. At the conclusion of the hearing I reserved my decision and gave it in writing on 14 July 1988. That decision is hereinafter referred to as "the second decision". There is annexed to the second decision a copy of an earlier decision of the special commissioners dated 20 May 1983 (hereinafter referred to). The first decision dealt with appeals between the same parties as this appeal and involving the same issue, but in relation to earlier income tax years. Copies of the first decision and the second decision are annexed hereto and form part of this case.
3. The reasons for annexing the first decision to the second decision and the circumstances in which I heard this appeal are set out in para. 3 of the decision. In so doing I followed a precedent set in the case ofJeffs (HMIT) v Ringtons Ltd TAXTAX(1985) 58 TC 680; [1985] BTC 585.
4. The question which I had to determine is summarised in para. 2 of the second decision.
5. [Paragraph 5 listed the documents admitted in evidence.]
6. Paragraphs 4 to 6 of the second decision (together with the parts of the first decision incorporated therein by reference) deal with findings of fact, the contentions of the parties and conclusions on questions of law.
7. Paragraph 6 of the second decision sets out my conclusion that the appeal of Dr Vas be allowed and his claim to relief be granted.
8. Immediately after the determination of the second appeal the Revenue declared to the special commissioners their dissatisfaction therewith as being erroneous in point of law and on 1 August 1988 required me to state a case for the opinion of the High Court pursuant toTaxes Management Act 1970 section 56sec. 56 of theTaxes Management Act 1970.
9. The question of law for the opinion of the court is whether my decision that SI 1978/1056 section 21art. 21 of the Convention does not impose an overall limit of two years in the aggregate covering all visits to the UK by Dr Vas for the purposes of research at the University of Newcastle-Upon-Tyne is correct in law.
Mr Everett and I have reached our conclusions on this matter and we are going to give you an oral decision now and if either party wishes to take matters further we will make a fuller statement, as may be necessary, in the stated case.
We have a statement of facts which reads as follows:
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1. Dr P Vas ("the taxpayer") is a Hungarian national within the meaning of SI 1978/1056 section 3art. 3 of the Convention of 28 November 1977 between the UK and the Hungarian People's Republic scheduled to the Double Taxation Relief (Taxes on Income) (Hungary) Order 1978 (SI 1978/1056) ("the Convention").
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2. On 21 January 1979 the taxpayer arrived in the UK from Hungary for the purpose of engaging in research as a research associate in the department of electrical and electronic Engineering at the University of Newcastle-upon-Tyne for a period not exceeding two years. The taxpayer commenced this salaried appointment on 24 January 1979 and the appointment terminated on 23 January 1981. Immediately prior to his arrival in the UK, the taxpayer was a resident of the Hungarian People's Republic within the meaning of SI 1978/1056 section 4art. 4 of the Convention.
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3. The taxpayer left the UK on 22 January 1981 and returned to Hungary. On 19 February 1981 he returned to the UK to take up a further one year appointment as a research associate in the department of electrical and electronic engineering at the University of Newcastle-upon-Tyne. The duration of the appointment was one year from 31 January 1981 to 31 January 1982. The taxpayer was on paid holiday from 31 January 1981 until 23 February 1981.
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4. The question for determination is whether the taxpayer is entitled to relief under Income and Corporation Taxes Act 1970 section 497 subsec-or-para (1)sec. 497(1) of the Income and Corporation Taxes Act 1970 and SI 1978/1056 section 21art. 21of the Convention by way of exemption from UK tax on remuneration received from the University of Newcastle-upon-Tyne in respect of his two appointments as a research associate.
That is an agreed statement, subject to the qualification that Dr Vas takes exception to the use of the word "further" in the phrase "a further one year appointment" in para. 3, and he also took exception to the statement that he was on paid holiday from 31 January 1981 until 23 February 1981. During the, course of the hearing, however, he appeared to concede that that was in fact the position because of the terms of the appointment which he returned to take up on 23 February. I will deal with that in a little more detail later.
The Revenue has contended that Dr Vas's various visits to this country from January 1979 onwards constitute in effect a single visit starting...
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