Padmore v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 01 December 1986 |
| Date | 01 December 1986 |
| Court | Chancery Division |
Chancery Division.
Mr. P.G. Whiteman Q.C. and Mr. P. Soares (instructed by Messrs. Needham & Grant) for the taxpayer.
Mr. A. Park Q.C. and Mr. A. Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Peter Gibson J.
The following cases were referred to in the judgment:
Edwards (H.M.I.T.) v. Bairstow & Anor. ELR[1956] A.C. 14
Forth Investments Ltd. v. I.R. Commrs. TAX(1976) 50 T.C. 617
Reed (H.M.I.T.) v. Young TAXTAX[1983] BTC 430; [1986] BTC 242 (H.L.)
Sadler v. Whiteman & Anor. ELR[1910] 1 K.B. 868
Income tax - Double tax relief - Income and Corporation Taxes Act 1988Sch. D, Case V - Whether income of a UK resident partner in a Jersey partnership from the partnership trade was exempt from UK tax as the industrial or commercial profits of a Jersey enterprise - Whether Jersey partnership was a body of persons resident in Jersey for purposes of Jersey tax - SI 1952/1216Double Taxation Relief (Taxes on Income) (Jersey) Order 1952 (S.I. 1952 No. 1216).
This was an appeal by the taxpayer from a decision of a Special Commissioner that his share of the trade profits of a Jersey partnership were assessable to UK income tax.
The taxpayer was resident in the UK for tax purposes and was a partner in a Jersey partnership. The partnership comprised over 100 UK resident partners and carried on a trade which was managed and controlled in Jersey. The partnership profits were assessed to Jersey tax under the provisions of SI 1952/1216 section 74 subsec-or-para (1)art. 74(1) of the Income Tax (Jersey) Law 1961 which corresponded to the Income and Corporation Taxes Act 1970 section 152Income and Corporation Taxes Act 1970, sec. 152. The taxpayer was assessed to UK tax under Income and Corporation Taxes Act 1988Sch. D, Case V in respect of his share of those partnership profits. He claimed that under section 497 subsec-or-para (1)sec. 497(1)(a) of the 1970 Act, the profits were exempt from UK tax by virtue of SI 1952/1216 section 3 subsec-or-para (2)art. 3(2) of the arrangement scheduled to the Double Taxation Relief (Taxes on Income) (Jersey) Order 1952 (the arrangement) as the industrial and commercial profits of a Jersey enterprise. Therefore, he argued that he could not be taxed in the UK on his share of those profits.
The Revenue refused the taxpayer's claim and he appealed to a single Special Commissioner. The Commissioner dismissed the taxpayer's appeal. He held that the Jersey partnership was, for the purposes of Jersey taxation, a body of persons resident in Jersey carrying on a Jersey enterprise, the profits of which were exempt from UK tax underSI 1952/1290 section 3 subsec-or-para (2)art. 3(2) of the arrangement. However, the taxpayer's share of those profits was a separate matter. It was not so exempt because he was not a Jersey resident and did not carry on a Jersey enterprise within the meaning of the arrangement. The taxpayer appealed to the High Court against that decision.
The taxpayer supported the Commissioner's conclusion that a "Jersey enterprise" could include the business of a partnership as such and contended that that conclusion was unassailable as it rested on findings of fact. However, he submitted that the Commissioner had erred in his conclusion that the exemption from UK tax available to partnership profits did not extend to an individual share in those profits attributable to a UK resident partner. No partner had a business separate from that of any other partner or the partnership and since none of the partnership profits were subject to UK tax, each partner's share of the same profits was also not subject to tax. A partnership was a body of persons within the meaning of the arrangement. It had a residence and the test of control and management in the Income and Corporation Taxes Act 1970 section 153 subsec-or-para (1)Income and Corporation Taxes Act 1970, sec. 153(1) and SI 1952/1216 section 76 subsec-or-para (1)art. 76(1) of the Jersey law was implicitly the test of residence for the purpose of the arrangement.
The Revenue submitted that a partnership was not a "person" or "body of persons" and that the partnership did not have a residence in Jersey. A partnership could not have a residence unless all the partners were resident in the same country as that in which the partnership was based. The conclusion which the Commissioner had reached was correct as a partner's share was untouched by the exemption in SI 1952/1216 section 3 subsec-or-para (2)art. 3(2). The effect and purpose of art. 3(3) was to remove UK tax liability from the profits of a Jersey enterprise trading in the UK otherwise than through a permanent establishment there and the article was not directed and did not apply to the tax liability of a partner receiving his share of all the profits.
Held, allowing the taxpayer's appeal:
1. The Commissioner was right to say that a partnership was clearly a "body of persons" in the ordinary sense of the words, which came within the arrangement for that reason. It was improbable that partnerships were intended to be excluded from the arrangement, dealing as it did with income tax on the profits of an industrial or commercial enterprise or undertaking, which was expressly not limited to a company. So common a trading entity as a partnership must have been comprehended.
2. The residence of a partnership for purposes of the arrangement was determined by the control and management factors which applied to companies. The draftsmen could not have drafted the arrangement with the intention that the only partnerships to be commercial or industrial enterprises were those with partners exclusively drawn from the tiny province of Jersey.
3. Partnership income had long been taxed on an artificial basis. An assessment was made in the partnership name on the partners who were jointly liable to the Revenue for the whole of any tax which might be payable. Then there had to be an apportionment of the income between the partners. It was impossible to treat what under the general law was a single enterprise as being divided up into several enterprises, depending on the residence of the partners to calculate each individual liability.
4. The language of art. 3(2) was unequivocal in its meaning. All the industrial or commercial profits of a Jersey enterprise were not to be subject to UK tax and that meant that those profits, wherever earned, were not to be subject to tax, save only to the extent that they were attributable to a permanent establishment in the UK. That left Jersey alone (as between itself and the UK) to tax those profits. As none of the profits were subject to UK tax, a share of the same profits were similarly exempt. In the result art. 3(2) exempted from UK tax the shares of the profits of the Jersey enterprise attributable to the UK resident partners.
Stated under the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56 by the Commissioners for the special purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. On 16 and 17 April 1984 one of the Special Commissioners heard the appeal of Maurice Keith Padmore (the taxpayer) against the refusal by the Revenue of his claim to relief from income tax 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 para. 3 of the arrangement scheduled to the SI 1952/1216Double Taxation Relief (Taxes on Income) (Jersey) Order 1952 (S.I. 1952 No. 1216) ("the arrangement") for the years of assessment 1975-76 to 1981-82 inclusive. The taxpayer had consented to the hearing of his appeal by a single Special Commissioner and the Commissioner was satisfied that delay would thereby be avoided (Taxes Management Act 1970 section 45 subsec-or-para (2)Taxes Management Act 1970, sec. 45(2)).
2. At all material times the taxpayer was a resident of the UK and a member of a partnership the business of which was controlled and managed in Jersey. The taxpayer's claim is related the question of his liability to UK income tax in respect of his share of the profits of the partnership.
Paragraph 3(2) of the arrangement reads, so far as material as follows:
the…commercial profits of a Jersey enterprise shall not be subject to United Kingdom Tax…
and the questions for the Commissioner's determination were, shortly stated:
(i) whether, within the meaning of the arrangement, the words "Jersey enterprise" could include the business of a partnership as such; if so,
(ii) whether the exemption from UK tax of the profits of the partnership as such, under para. 3(2), extends also to each of the individual partners' shares of such profits.
3. Richard John Michel and Michael Cameron St. John Birt, advocates of the Royal Court of Jersey, gave evidence as to the law of Jersey.
4. The Commissioner had before him a written statement of facts and a folder of documents comprising copies of the partnership agreements, a copy of a patent renewal notice issued the partnership in the ordinary course of its business, and a schedule naming (and indicating the residence of) the individual partners. The statement of facts and the documents were agreed by the parties.
5. The facts and the contentions of the parties were set out in the reserved decision given writing on 31 May 1984. As appears therefrom the Commissioners answered the first of the questions set out in para. 2 hereof in the affirmative and the second in the negative: and dismissed the appeal against the refusal of the claim.
6. The taxpayer immediately after the determination of the appeal declared dissatisfaction therewith as being erroneous in point of law and on 1 June 1984 required the Commissioners to state a case for the opinion of the High Court pursuant to the Taxes Management Act1970, Taxes Management Act 1970 section 56sec. 56.
7. The question of law for the opinion of the court was whether, on the facts set out in the...
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