Padmore v Commissioners of Inland Revenue (No 2)
| Jurisdiction | England & Wales |
| Judgment Date | 22 January 2001 |
| Date | 22 January 2001 |
| Court | Chancery Division |
Chancery Division.
Lightman J.
P Whiteman QC (instructed by Morgan Cole) for the appellant.
Launcelot Henderson QC (instructed by the Solicitor for the Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Associated Newspapers Group Ltd v Fleming ELR[1973] AC 628
Collco Dealings Ltd v IR Commrs TAXELR(1962) 39 TC 509; [1962] AC 1
Farrell v Alexander ELR[1977] AC 59
IR Commrs v McGuckian TAX[1997] BTC 346
Institute of Patent Agents v Lockwood ELR[1894] AC 347
Joiner v IR Commrs TAXWLR(1975) 50 TC 449; [1975] 1 WLR 1701
Melluish (HMIT) v BMI (No. 3) Ltd TAXELR[1995] BTC 381;[1996] 1 AC 454
NAP Holdings UK Ltd v Whittles (HMIT) TAX[1994] BTC 450
Padmore v IR Commrs TAX[1989] BTC 221
Pepper (HMIT) v Hart TAX[1992] BTC 591
R v Moore UNK[1995] 4 All ER 843
R v Secretary of State for the Environment, Transport and the Regions, ex parte Spath Holme Ltd WLR[2001] 2 WLR 15
R v Secretary of State for the Home Department, ex parte BrindELR[1991] 1 AC 696
WT Ramsay Ltd v IR Commrs ELR[1982] AC 300
Woodend KV Ceylon Rubber and Tea Co Ltd v Ceylon IR CommrsELR[1971] AC 321
Income tax - Capital gains tax - Double taxation relief - Partnership business carried on in Jersey - UK resident partner receiving share of partnership profits - Whether income of UK resident partner in Jersey partnership from partnership trade exempt from UK tax as commercial profits of Jersey enterprise - Whether legislature successful in negating effect of earlier legislation by subsequent enactment - Income and Corporation Taxes Act 1970, Income and Corporation Taxes Act 1970 section 497 subsec-or-para (1)s. 497(1) - Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 788 subsec-or-para (3)s. 788(3) - Finance (No 2) Act 1987, Finance (No. 2) Act 1987 section 62s. 62,now Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 112s. 112.
The appellant was domiciled and resident in the UK. He was a partner in a partnership ("CPA") carrying on business in Jersey. CPA did not have a permanent establishment in the UK. Its profits had at all material times been taxed in Jersey. The appellant claimed relief from UK income tax on his share of CPA's profits under Income and Corporation Taxes Act 1970 section 497 subsec-or-para (1)s. 497(1) of the Income and Corporation Taxes Act 1970 ("icta 70") (for the year of assessment 1987-1988) and Income and Corporation Taxes Act 1988 section 788 subsec-or-para (3)s. 788(3) of the Income and Corporation Taxes Act 1988 ("icta 88") (for the years of assessment 1988-1999) and para. 3 of the Arrangement with the States of Jersey ("the Arrangement").
Whether s. 62 of the Finance (No 2) Act 1987 ("f(no 2)a 87") andIncome and Corporation Taxes Act 1988 section 112s. 112 of icta 88 prevailed over Income and Corporation Taxes Act 1970 section 497 subsec-or-para (1)s. 497(1) of icta 70 andIncome and Corporation Taxes Act 1988 section 788 subsec-or-para (3)s. 788(3) of icta 88 respectively so as to deny the appellant the relief claimed.
Held, dismissing the appeal:
The conflict between icta 70 and s. 62 of f(no 2)a 87 (in relation to the year of assessment 1987-1988), and between ss. 112 and 788 of icta 88 (in relation to the years of assessment 1988-1999), had to be resolved in favour of giving effect to the provisions of s. 62 of f(no 2)a 87 and Income and Corporation Taxes Act 1988 section 112s. 112 of icta 88 for the following reasons:
(a) The alternative construction would deprive ss. 62 andIncome and Corporation Taxes Act 1988 section 112 subsec-or-para (4) section 112 subsec-or-para (5)112(4), (5) of all effect.
(b) The purpose behind s. 62 - to remove the exemption conferred on Mr Padmore - was only achieved if s. 62 prevailed over Income and Corporation Taxes Act 1970 section 497s. 497 of icta 70. In construing icta 88, the purpose behind s. 62 of f(no 2)a 87 could be considered in order to resolve the conflict that would otherwise exist between the provisions of icta 88.
(c) The departure from the provisions of the Arrangement was plainly and deliberately made. There was no scope for any presumption that that was not Parliament's intention.
Lightman J: Introduction
1. This is an appeal by Mr Padmore against the decision in principle of the special commissioners delivered on the 21 June 2000 ("the decision"). The decision upheld the refusal by the Board of Inland Revenue of Mr Padmore's claim to relief from income tax in respect of his share of the profits for the years 1987-1999 of Computer Patent Annuities ("CPA"), a partnership resident in Jersey. The claim to relief is made in respect of the year of assessment 1987-8 underIncome and Corporation Taxes Act 1970 section 497 subsec-or-para (1)s. 497(1) of the Income and Corporation Taxes Act 1970 ("the 1970 Act") and in respect of the years of assessment 1988-1999 inclusive under Income and Corporation Taxes Act 1988 section 788 subsec-or-para (3)s. 788(3) of theIncome and Corporation Taxes Act 1988 ("the 1988 Act") and (in both cases) para. 3 of the Arrangement with the States of Jersey ("the Jersey Arrangement") scheduled to the Double Taxation Relief (Taxes on Income) (Jersey) Order (SI/1952/1216) ("the 1952 Order"). In the case of Padmore v IR Commrs TAX[1989] BTC 221 ("Padmore No. 1") Peter Gibson J held that Mr Padmore as a resident of the UK was entitled to exemption from income tax in respect of his share of profits as a partner in CPA for the years 1976-1987 under Income and Corporation Taxes Act 1970 section 497 subsec-or-para (1)s. 497(1) of the 1970 Act and para. 3 of the Jersey Arrangement and (on appeal) his decision was upheld by the Court of Appeal. The issue now raised is whether this exemption was removed in respect of the year 1987-8 by Finance (No. 2) Act 1987 section 62s. 62 of the Finance (No 2) Act 1987 ("the 1987 Act") and whether such exemption continues to be removed in respect of the years 1988-1999 by the equivalent provision in the later consolidation Act, Income and Corporation Taxes Act 1988 section 112 subsec-or-para (4)s. 112(4) of the 1988 Act. It is clear beyond question that the legislature's purpose in enacting Finance (No. 2) Act 1987 section 62s. 62 of the 1987 Act was to remove the exemption. The questions raised are whether the same purpose can be inferred in respect of Income and Corporation Taxes Act 1988 section 112s. 112 of the 1988 Act and whether in the case of both sections the legislature's efforts to give effect to that intention have been effective. This is a test case of some considerable practical importance for two reasons. First, some 300 partners and ex-partners in CPA have agreed to be bound by the decision in this case and there is accordingly a sum at stake of some £10m. Secondly, the same or substantially the same question arises in respect of other foreign partnerships under arrangements with other countries.
2. The relevant facts are agreed as follows. CPA is a partnership, or series of partnerships, first established in Jersey on the 1 April 1969. It has carried on the business of furnishing a world-wide renewals service in connection (since it was established) with letters patent and (since 1976) with trade marks and other equivalent forms of incorporeal property. There are some 297 partners, of whom 223 are partners or employees in various firms of patent and trade mark agents practising in the UK and resident and domiciled in the UK for tax purposes. The business of CPA has always been carried on from its offices in Jersey and its day-to-day business is dealt with by three managing partners who are Jersey residents. General meetings of the partners are held in Jersey (and nowhere else) and at these meetings policy matters are discussed and the decisions taken are thereafter implemented by the Jersey resident partners. It is common ground that the control and management of CPA has always for income tax purposes been situate in Jersey and that (for all relevant purposes) CPA has never done business through a permanent establishment in the UK. Since the 1 February 1976, Mr Padmore, a resident of the UK, has been one of the partners in CPA. The profits of CPA are, and have at all material times, been assessed to Jersey Tax under the provisions of art. 74(1) of the Income Tax (Jersey) Law 1961.
3. The case of Padmore No. 1 decided an issue raised in 1979 whether Mr Padmore was assessable to UK income tax under Case V of Sch. D in respect of his share of CPA's profits (subject to credit for his share of the Jersey tax paid). On the 19 December 1979, Mr Padmore's accountants claimed that under Income and Corporation Taxes Act 1970 section 497 subsec-or-para (1)s. 497(1)(a) of the 1970 Act those profits were exempt from UK income tax by virtue...
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