Matrix Securities Ltd v Commissioners of Inland Revenue
| Jurisdiction | UK Non-devolved |
| Judgment Date | 17 February 1994 |
| Court | House of Lords |
| Date | 17 February 1994 |
House of Lords.
Lord Templeman, Lord Griffiths, Lord Jauncey of Tullichettle, Lord Browne-Wilkinson and Lord Mustill.
David Goldberg QC, David Pannick QC and John Walters (instructed by Theodore Goddard) for Matrix Securities Ltd.
Lord Lester of Herne Hill QC and Charles Flint (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Black Nominees Ltd v Nicol (HMIT) TAX(1975) 50 TC 229
Commr of Inland Revenue (New Zealand) v Challenge Corp LtdELRTAX[1987] AC 155; [1986] BTC 442
Eilbeck (HMIT) v Rawling UNKELR[1980] 2 All ER 12 (CA); [1982] AC 300 (HL)
Ensign Tankers (Leasing) Ltd v Stokes (HMIT) ELRTAX[1992] 1 AC 655; [1992] BTC 110
Fitzwilliam (Countess) v IR Commrs WLRTAX[1993] 1 WLR 1189; [1993] BTC 8003
IR Commrs v Burmah Oil Co Ltd TAXTAX(1981) 54 TC 200; [1982] BTC 56
Moodie v IR Commrs & Anor; Sotnick v IR Commrs & AnorWLRTAX[1993] 1 WLR 266; [1993] BTC 85
R v IR Commrs, ex parte MFK Underwriting Agencies Ltd & Ors and related applications WLRTAX[1990] 1 WLR 1545; [1989] BTC 561
R v IR Commrs, ex parte Preston ELRTAX[1985] AC 835; [1985] BTC 208
Ramsay (WT) Ltd v IR Commrs WLRELR[1979] 1 WLR 974 (CA); [1982] AC 300 (HL)
Income tax - Tax avoidance scheme - Clearance by inspector - Withdrawal of clearance by Revenue - Whether Revenue entitled to withdraw assurances given by inspector - Whether unfair and abuse of power -Capital Allowances Act 1990 section 10A subsec-or-para (2)Capital Allowances Act 1990, s. 10A(2)(b)(9).
This was an appeal against a decision of the Court of Appeal ([1993] BTC 413) dismissing an appeal from a decision of Laws J who had refused an application for judicial review of the Revenue's decision to revoke clearance for a tax avoidance scheme given by an inspector.
The applicants ("Matrix") were the sponsors of a unit trust called Matrix South Quay Trust which was formed in September 1993 to acquire certain buildings in the course of construction in the London Docklands enterprise zone. The object was to claim the capital allowances available under the Capital Allowances Act 1990 section 1Capital Allowances Act 1990, s. 1 for construction of buildings in an enterprise zone, by virtue of Capital Allowances Act 1990 section 10A subsec-or-para (2) section 10A subsec-or-para (9)s. 10A(2)(b) and (9). By those provisions the "net price" paid for the purchase of a relevant interest in a building was deemed to be expenditure on construction of the building.
The sum of £95m was to be raised for the purposes of the scheme. However, the vendor, the receiver of a company which owned the building, was to receive only £8m, the balance being used, apart from £10m needed to complete building operations, in financial arrangements to launch a tax avoidance scheme.
Units of £1,000 were to be offered to investors. The package provided for a bank, Hill Samuel, to lend 67 per cent of the purchase price which, because of "exit arrangements" including a put option to repurchase the investor's interest after ten years, would not have to be repaid. Interest on the loans was to be paid to Hill Samuel by the assignment of rent paid under a lease of the building to a Jersey company, Newco, which had been set up by Matrix to participate in the scheme. Rent of £5.7m was to be paid out of a reverse premium of £70m paid by the receiver to Newco. The result was that an investor would have put up only 33 per cent of the price of his interest while claiming 100 per cent of the capital allowances. If clearance for the scheme could be obtained from the Revenue there would be no tax risk and the exit arrangements eliminated any significant investment risk.
Matrix's solicitors submitted an outline of the scheme in a letter to the inspector on 15 July 1993 seeking clearance for the scheme described as a "sale" of the building for £95m. The inspector gave the clearance requested without referring the matter to the Financial Institutions Division of the Revenue, although an extra copy of the letter had been sent to him for that purpose. The letter of 15 July mentioned the fact that Matrix's solicitors had seen a letter from the Financial Institutions Division ("the put option letter") raising a question about allowances where a put option was granted. The solicitors said that the letter raised different issues from those in the present case. They did not provide a copy of the put option letter to the inspector. However, in the prospectus for the scheme, the term "put option" was used in describing the exit arrangements.
On 19 August 1993 Matrix wrote to the receiver offering £8m for the building.
On 9 September 1993 the applicants' solicitors delivered a letter to the inspector enclosing an advanced draft of an information memorandum which described and advertised the Matrix Trust. The letter informed the inspector that the memorandum set out the details of the proposed scheme in substantially the same terms as the letter of 15 July but specified certain changes which had been made. The solicitors asked the inspector to confirm the clearance previously given and to reply on the same day. On the next day the inspector confirmed the clearance.
Matrix then issued the prospectus, spending substantial amounts on marketing the scheme, and contracts were exchanged with the receiver for the purchase of the building. On 22 September the trust opened for subscription and applications for half the necessary funds had been received by 8 October.
The Financial Institutions Division of the Revenue became aware of the scheme and, on 8 October, the clearance given by the inspector was withdrawn.
Matrix commenced judicial review proceedings challenging the withdrawal of the inspector's clearance. They submitted that the Revenue was not entitled to attempt to collect any tax after an assurance had been given in response to a request relating to a specific transaction if full disclosure had been made, and the assurances had been relied on. To do so would be unfair and an abuse of power. They contended that they had made full disclosure of all the facts relating to the scheme and had advertised the scheme relying on the inspector's assurance.
Laws J and the Court of Appeal, by a majority, held that the Revenue were justified in revoking the inspector's clearance of the scheme. If Matrix by the letter of 15 July had clearly disclosed the effect of the scheme, it would have been open to the court to hold that withdrawal of clearance by the inspector was unfair and an abuse of power. But the effects of the scheme were not made clear to the inspector. Further, the solicitors were aware of the existence of the put option letter written by the Financial Institutions Division. They did not tell the inspector that there might be a question whether the scheme involved a put option element which would have attracted the attention of the Financial Institutions Division. They should at least have provided him with a copy of the put option letter.
Held, dismissing Matrix's appeal:
1. If the statements made to the inspector were accurate and not misleading then the Revenue should not be allowed to revoke the clearance. If, on the other hand, the statements were materially inaccurate or misleading, then the clearance might be revoked. The contradiction between the price of £95m stated in the letter of 15 July 1993 to the inspector from the applicants' solicitors and the letter of 19 August offering £8m for the building was crucial. The price of £8m was the real price but £95m was the fiscal price. The South Quay Trust was a sophisticated tax avoidance scheme based on circular self-cancelling transactions producing fiscal expenditure of £95m and a real expenditure of only £18m. Once a tax avoidance scheme was identified, the scheme had to be construed as a whole and the taxing statute applied to the results in fact achieved by the scheme. Applying the Capital Allowances Act 1990, the Matrix scheme as a whole would result in relevant actual expenditure of £10m to complete the building and deemed expenditure of £8m, the purchase price. The letter of 15 July 1993 was inaccurate and misleading in that it envisaged a claim to initial allowance based on a pretended expenditure of £95m. The Revenue were therefore entitled to withdraw the clearance obtained as a result of the letter.
2. Per Lord Jauncey of Tullichettle: Taxpayers and their advisers should appreciate that when asking the Revenue for their view on complex problems, such time as was reasonably necessary should be given for their consideration.
3. Per Lord Griffiths and Lord Browne-Wilkinson (Lord Jauncey dissenting): A failure by the taxpayer to make full disclosure was not the only case in which it would not be an abuse of power to go back on an assurance given. If a taxpayer knew that clearance would not be given if requested at a particular level and extracted an assurance in some other way, then the Revenue would not be bound by the assurance. Matrix could not rely on any alleged abuse of power by the Revenue because they knew that put options such as featured in the exit arrangements of the scheme were not acceptable to the Financial Institutions Division but they nevertheless sought clearance from the inspector at local level. That alone was sufficient to dispose of any allegation of abuse of power.
Lord Templeman: The appellants, Matrix Securities Ltd ("Matrix") seek a declaration that the respondent Commissioners of Inland Revenue are not entitled to revoke tax clearances given by a letter dated 27 July 1993 and confirmed by a letter dated 10 September 1993 from the inspector of taxes. Laws J and the Court of Appeal (Dillon and Nolan L JJ, Roch LJ dissenting) refused to make the declaration and Matrix appeal.
On 1 January 1989 Wiggins Waterside Ltd ("WWL") entered into a contract for Wimpey Construction Ltd to...
To continue reading
Request your trial
- Darahman Ibrahim v Majlis Mesyuarat Kerajaan Negeri Perlis
-
Barclays Mercantile Business Finance Ltd v Mawson (Inspector of Taxes)
...Moodie v IR Commrs TAXTAXTAX[1990] BTC 328 (Ch); [1991] BTC 232 (CA); [1993] BTC 85 (HL) R v IR Commrs, ex parte Matrix-Securities Ltd TAX[1994] BTC 85 Ramsay (WT) Ltd v IR Commrs ELR[1982] AC 300 This was an appeal by the taxpayer against a decision of the special commissioners that a taxp......
-
Fayed v Commissioners of Inland Revenue
...ex p KebileneELR [2000] 2 AC 326 R v IRC ex p MFK Underwriting Agencies LtdWLR [1990] 1 WLR 1545 R v IRC ex p Matrix Securities LtdWLR [1994] 1 WLR 334 R v IRC ex p National Federation of Self-EmployedELR[1982] AC 617 R v IRC ex p PrestonUNKELR [1983] 2 All ER 300 at first instance, and [19......
-
R v Commissioners of Inland Revenue, ex parte Unilever Plc and Another
...WLRTAX[1991] 1 WLR 1399; [1991] BTC 451 HTV Ltd v Price Commission ICR[1976] ICR 170 R v IR Commrs, ex parte Matrix Securities Ltd WLRTAX[1994] 1 WLR 334; [1994] BTC 85 R v Independent Television Commission, ex parte TSW Broadcasting LtdUNK(unreported, 26 March 1992) R v IR Commrs, ex parte......
-
Public Law Representations and Substantive Legitimate Expectations
...had a legitimate expectation derived from past practice of36 n 5 above, 645.37 [1985] AC 835.38 [1996] STC 681.39 n 37 above, 866–867.40 [1994] 1 WLR 334.41 See comments of Lord Woolf in New Zealand Maori Council vAttorney General of New Zealand[1994] 1 AC 466 regarding recognition of subst......
-
Leveraged FTC Generators : did the Davis Committee give them too much credit?
...before turning it over to the taxman. Ironically, this lack of substance plays to the parties’ favour 6 Matrix Securities Ltd v IRC [1994] STC 272, at 282. 8Volume 9 • Issue 3 • september 2018Business Tax & Company Law Quarterly© Siber inkin this case, since it eliminates any incentive for ......
-
Of 'sham' and other lessons for Australian revenue law.
...406, 444 (Kirby J). (68) Raftland Pty Ltd (as Trustee of the Raftland Trust) v Commissioner of Taxation (2006) 227 ALR 598, 617. (69) [1994] 1 All ER 769, (70) Equuscorp (2005) 218 CLR 471, 483 (Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ). (71) Raftland (2008) 246 ALR 406, 428 (Kirby ......