Fisher and Others

JurisdictionUK Non-devolved
Judgment Date14 August 2014
Neutral Citation[2014] UKFTT 804 (TC)
Date14 August 2014
CourtFirst Tier Tribunal (Tax Chamber)

[2014] UKFTT 804 (TC)

Judge Swami Raghavan, Mrs Shahwar Sadeque

Fisher & Ors

Stephen Brandon QC, Rory Mullan and Harriet Brown, Counsel, instructed by James Cowper appeared for the Appellants

David Ewart QC, Oliver Connolly and Barbara Belgrano, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the Respondents

Income tax - Anti-avoidance - Transfer of assets abroad code - Income and Corporation Taxes Act 1988 ("ICTA 1988"), Income and Corporation Taxes Act 1988 section 739s. 739 - Appellants were shareholders in UK bookmaker which transferred its telebetting business to Gibraltar - Purpose of avoiding betting duty found but not corporation tax or other income tax.Relevance and compatibility of EU freedom of establishment and free movement of capital rights considered - Freedoms did not apply as between UK and Gibraltar - Freedoms did apply however in respect of first appellant who was national of another member state (Ireland) - Legislation incompatible - Interpretation conforming to EU right given - Appeals of first appellant allowed.Whether certain assessments defective because conditions for discovery assessment (Taxes Management Act 1970 ("TMA 1970"), Taxes Management Act 1970 section 29 subsec-or-para 5s. 29(5)) and time limits (TMA 1970, Taxes Management Act 1970 section 36s. 36) not met - Yes.Appeals of second and third appellants allowed for defective assessments - Their appeals for the remaining valid assessments dismissed in principle.

The First-Tier Tribunal (FTT) has allowed certain of the Fisher family's appeals against assessments to income tax under the Income and Corporation Taxes Act 1988 (ICTA 1988), s. 739 (now the Income Tax Act 2007 (ITA 2007), Income Tax Act 2007 section 720s. 720) and the ITA 2007, s. 720 (the transfer of assets abroad (TOAA) code) but dismissed the rest finding that the appellants were in principle liable to the charge following the transfer of their UK betting business to a Gibraltar company because the purpose of the transfer had been the avoidance of betting duty which precluded the s. 741 (now ITA 2007, Income Tax Act 2007 section 736s. 736ff.) no tax avoidance motive defence. However, the appeals in relation to Anne Fisher were allowed on the basis that her Irish nationality meant her European law rights of establishment and to move capital were engaged and the TOAA charge restricted those rights without justification and was not proportionate. Applying a conforming interpretation to the UK legislation meant the scope of the motive defence was widened and could be applied in her case. Certain of the appeals in respect of discovery assessments for the remaining two appellants, Stephen and Peter Fisher, were also allowed on the grounds that for two years of assessments there had been no "discovery" within the Taxes Management Act 1970 (TMA 1970), Taxes Management Act 1970 section 29 subsec-or-para 5s. 29(5) and one further assessment was outside the six year time limit provided by TMA 1970, Taxes Management Act 1970 section 34s. 34 and neither the appellant nor his accountants had been negligent so as to extend the period to 20 years pursuant to TMA 1970, Taxes Management Act 1970 section 36s. 36.

Summary

The appellants, Stephen Fisher, his wife Anne Fisher and their son Peter Fisher, were all shareholders of a family-owned UK-resident company (SJA) which operated a bookmaking business consisting of betting shops, telebetting and internet betting. The shareholders set up a Gibraltar-incorporated company (SJG) and the UK company sold its telebetting operations and other activities (other than the shops) to it.

The appeals related to assessments to income tax under ICTA 1988, s. 739 (now ITA 2007, Income Tax Act 2007 section 720s. 720) and ITA 2007, s. 720 resultant from the transfer of assets abroad (TOAA), in respect of which HMRC's argued primarily that the charges applied because ICTA 1988, s. 741, which provided a "motive defence" for commercial transactions not intended to avoid tax, did not apply. There was no dispute that the appellants did not have a power to enjoy the income (arising abroad) (ICTA 1988, s. 742(2) (now ITA 2007, Income Tax Act 2007 section 722s. 722)). The arguments put forward by the appellants in defence against the assessments and conclusions reached by the FTT on each issue were as follows:

Was actual avoidance of income tax required before s. 739 could apply?

The FTT noted that the House of Lords in IR Commrs v McGuckianTAX[1997] BTC 346 had already held that actual income tax avoidance was not a pre-requisite to the application of the section and although McGuckian related to ICTA 1970, s. 478, it was nevertheless relevant because there was no material difference between s. 478 and ICTA 1988, s. 739. The section was preventative in nature and there did not have to be an actual avoidance of tax before it could apply.

The legislation could not apply to a situation such as this where there were multiple quasi-transferors.

The FTT noted that the issue of multiple transferors had been considered in the case of IR Commrs v PrattTAX[1982] BTC 319 in which case the term "quasi-transferors" had been used to describe a person who although not the transferor of the assets, was nevertheless liable to the charge as having procured the transfer of the assets (as had been determined by IR Commrs v Vestey (1959-1963) 40 TC 112). The Pratt decision had confirmed that the charge did not apply in cases of multiple transferors unless it was possible to separate out the respective interests of each transferor. However, the FTT found that the introduction of ICTA 1988, s. 744(1) (now ITA 2007, s. 743) put an entirely different complexion on the significance of Pratt and opened the door to the possibility of the TOAA code applying to situations where there were multiple quasi-transferors because s. 744 provided the mechanism to deal with the concerns of apportionment and fear of a double charging consequence which had been the reason for the decision in Pratt. The FTT found that the transfer was jointly procured by all three appellants and they were not prevented from being quasi-transferors by virtue of there not being an identifiable proportion which they were to be regarded as having transferred. The whole of the transfer was to be attributed to each and in so far as this led to the same income being taxed multiple times, that was addressed by the apportionment provision in s. 744.

The TOAA code could not apply to the present facts involving a trading company whose business had evolved into new areas because income from the new trade was too remotely related to the transfer to fall within the charge.

The FTT found that the new business areas of internet, casino and poker profits could not be caught as being "by virtue or in consequence of" the transfer of the telebetting business but had to be viewed as having arose in consequence of the intervening events of those new ventures being set up. The question was, therefore, whether the new business ventures were caught by virtue of being "associated operations". In this respect, a number of cases were considered, including Fynn v IR CommrsTAX(1957) 37 TC 629, Carvill v IR CommrsSCD(2000) Sp C 233; Herdman v IR Commrs (1966-1969) 45 TC 394. The FTT conclude that an associated operation had to be "in relation to" the transferred assets and that there had to be either a new power to enjoy for the taxpayer or new income becoming payable to the person abroad. In the present case, the new ventures only got off the ground with income arising in relation to the transferred assets and not with other funding, therefore, the new ventures did relate to income from the transferred assets. New income did become payable to the person abroad (SJG) and, accordingly, the setting up of the internet, casino and poker ventures were associated operations meaning that the resultant income was income arising from the transferred assets.

The motive defence in ICTA 1988, s. 741.

The appellants argued that there was no tax avoidance purpose because the move to Gibraltar was to save the business. The rest of the telebetting industry moved offshore and had they not moved their business as well it would have failed. They set up a separate company not to avoid corporation tax but because they considered it necessary to protect against potential prosecution under the Betting and Gaming Duties Act 1981 (BGDA 1981), s. 9 (which provided a criminal offence would apply where a bookmaker in the UK was sharing resources with an overseas bookmaker who was taking bets from the UK). There was no avoidance because SJG was a real operation with premises and employees. Referring to the dictum in IR Commrs v Brebner (1963-1967) 43 TC 705, confirmed by IR Commrs v WilloughbyTAX[1997] BTC 393 (taking a lower tax route did not necessarily result in a tax avoidance motive) the real economic consequences of not being subject to betting duty on UK bets placed there had been borne by SJG. Finally, avoidance could not apply to betting duty because its economic incidence fell on the punter not the bookmaker.

The FTT considered each of the issues raised and determined that:

  1. (i) in examining the tax avoidance motive defence, it was necessary to consider each appellant's purpose in order to determine the purpose for which the transfer was made and in that respect, whilst taking bets abroad from punters in Great Britain so that betting duty was not liable would amount to avoidance of betting duty, the question was whether it was the appellants' purpose to avoid betting duty;

  2. (ii) the legislation was clear that it was bookmakers and not the customer who were liable for betting duty and the fact that bookmakers had chosen to incorporate the betting duty into the price they charged was entirely a matter for them. The economic burden of the duty imposed by the legislation fell on the bookmaker and if it fell on...

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    ...have been available to the appellants. Appeals allowed. Summary This was an appeal and cross-appeal against the FTT decision of Fisher [2014] TC 03921 which concerned the sale and transfer of a telebetting business by a UK resident company, Stan James (Abingdon) Ltd (SJA) to a Gibraltar com......
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