Percival
| Jurisdiction | UK Non-devolved |
| Judgment Date | 18 April 2013 |
| Neutral Citation | [2013] UKFTT 240 (TC) |
| Date | 18 April 2013 |
| Court | First Tier Tribunal (Tax Chamber) |
[2013] UKFTT 240 (TC)
Judge Malcolm Gammie CBE QC, Sonia Gable
The Appellant appeared in person
Ms Sarah Ford (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the Respondents
Income tax - Taxpayer a British national resident in Ireland -taxed in the UK on a civil service pension by virtue of UK/Irish Double Taxation Convention, art. 18 - taxpayer's wife an Irish national taxed on UK local authority pension in Ireland - taxpayer taxed less favourably in the UK than if taxed as his wife in Ireland -whether DTC, art. 18 compatible with EU law - discrimination on grounds of nationality - whether DTC, art. 18 compatible with European Convention on Human Rights, art. 14 - construction of DTC, art. 23(1) (non-discrimination clause) - appeal dismissed
The First-tier Tribunal decided that the UK/Ireland Double Taxation Convention 1976 ("DTC 1976"), art. 18 was compatible with the UK's obligations under the European treaties. UK's insistence as the source state on taxing the civil service pension of a taxpayer, notwithstanding his choice to move to Ireland, could not be regarded as a restriction on the exercise of his community law rights. On that basis, the most that the Tribunal could do was to issue a declaration of incompatibility under the European Convention on Human Rights (ECHR), art. 14. However, the Tribunal had not been invested with the power to make such declaration. The Tribunal also decided that in the context of the treaty as a whole, DTC 1976, art. 23(1) did not indicate that the taxpayer's liability to UK tax should be restricted to the tax that would have been borne by an Irish national in his circumstances. "Subjected to any taxation" under DTC 1976, art. 23(1) referred to any taxation of the state in which the enterprise was formed and in which the foreign national was currently found.
The taxpayer appealed against HMRC's decision disallowing his claim for relief in respect of his UK civil service pension.
The taxpayer was a British national but had been a resident of Ireland since January 2004. Since January 2006, the taxpayer was receiving a British civil service pension in respect of his former employment with the Inland Revenue.
The taxpayer submitted a claim to the Irish Revenue for double taxation relief under the DTC 1976 in respect of his UK sources of income. The Irish Revenue certified the taxpayer as being a resident in Ireland for the purposes of Irish tax. As a result, the taxpayer was granted an exemption from UK tax under the terms of DTC 1976 in respect of his private pension and savings income. No exemption was granted in respect of his UK civil service pension.
In March 2008, the taxpayer made a formal claim for relief in respect of his UK civil service pension. HMRC opened an enquiry into his claim and in November 2008, they closed their enquiry by disallowing his claim.
The taxpayer contended that DTC 1976, art. 18 contravened the European treaties and ECHR, art. 14. As an Irish resident person for the purposes of DTC 1976, he was unfairly treated relative to his wife ("Mrs P"), who was an Irish resident and national. His public pension was taxed in the UK and exempt in Ireland, whereas, the same pension paid to an Irish national in his position would be exempt in the UK and taxed in Ireland. Properly construed, DTC 1976, art. 23(1) should be taken to provide that his liability to UK tax should be restricted to the tax that would have been borne by an Irish national in his circumstances.
(2) Whether DTC 1976, art. 18 was compatible with the UK's obligations under the European treaties.
(3) Whether DTC 1976, art. 18 was compatible with ECHR, art. 14.
(4) Whether DTC 1976, art. 23(1) should be construed to mean that the taxpayer's liability to UK tax should be restricted to the tax that would have been borne by an Irish national in his circumstances.
Held, dismissing the taxpayer's appeal:
On the first issue, the Tribunal held that UK's insistence as the source state on taxing the taxpayer's civil service pension, notwithstanding his choice to move to Ireland, could not be regarded as a restriction on the exercise of his community law rights. It would be extraordinary if that were so because the UK had chosen to retain its taxing right in the context of DTC 1976 under which it had secured for his exemption from taxation in Ireland on the same income. Irish and dual British/Irish nationals were not in a comparable position to taxpayer as a British national because each was subject to a different tax system in respect of the income in question. It was true that that difference in taxation treatment derived from their different nationalities, but they were nevertheless in objectively a different situation because they were subject to different tax systems, i.e. UK's, in the taxpayer's case, and Ireland's, in Mrs P's case. Thus, DTC 1976, art. 18 was compatible with the UK's obligations under the European treaties.
On the second issue, the Tribunal held that DTC 1976 itself was not primary or secondary legislation, but it was given effect to for tax purposes through statutory provision and was incorporated in secondary legislation pursuant to that statutory provision. However, it was impossible to construe or give effect to DTC 1976 in a manner compatible with the taxpayer's human rights. DTC 1976 unambiguously allocated the sole taxing rights in respect of that element of the taxpayer and Mr P's pension income to UK and Ireland, respectively. On the basis that DTC 1976 was compatible with community law, the most that the Tribunal could do was to issue a declaration of incompatibility under HRA 1998, Human Rights Act 1998 section 4s. 4. However, it had not been invested with the power to make such declaration.
Finally, the Tribunal held that DTC 1976, art. 23(1) started by referring to a foreign national, who came into the state in question. On the other hand, DTC 1976, art. 23(3) started with a national of the state in question that was owned or controlled by foreign residents. That different starting point did not lend support to the idea that "subjected to any taxation" was referring to something different in each case. In both cases, it referred to any taxation of the state in which the enterprise was formed and in which the foreign national was currently found. Thus, a natural reading of DTC 1976, art. 23(1), in the context of the treaty as a whole, did not indicate that the taxpayer's liability to UK tax should be restricted to the tax that would have been borne by an Irish national in his circumstances.
[1]The Appellant (Mr Percival) is a British national but since January 2004 he has been resident in the Republic of Ireland. Since January 2006 Mr Percival has been in receipt of a British civil service pension in respect of his former employment with the Inland Revenue. In addition he has other sources of private pension and savings income in the UK.
[2]Mr Percival submitted a claim to the Irish Revenue for double taxation relief under the UK/Ireland Double Taxation Convention of 2 June 1976 ("the DTC") in respect of his UK sources of income. The Irish Revenue certified the Appellant as being resident in Ireland for the purposes of Irish tax. As a result Mr Percival was granted an exemption from UK tax under the terms of the DTC in respect of his private pension and savings income. No exemption was granted in respect of his UK civil service pension.
[3]Article 17(1) of the DTC provides that:
Subject to the provisions of paragraphs (1) and (2) of article 18, pensions and other similar remuneration paid in consideration of past employment to a resident of a Contracting State and any annuity paid to such a resident shall be taxable only in that State.
[4]Article 18(2), however, provides that:
(a) Any pension paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority, in the discharge of functions of a governmental nature, shall be taxable only in that State.
(b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.
[5]Initially, Mr Percival sought to challenge the refusal of exemption from UK tax for his civil service pension by appealing against his PAYE coding for the year. Having been informed of the correct way to challenge the refusal, Mr Percival made a formal claim on 5 March 2008 for relief in respect of his UK civil service pension. The Respondents ("HMRC") opened an enquiry into his claim and on 6 November 2008 closed their enquiry by disallowing his claim.
[6]On 12 September 2009 Mr Percival sought to appeal HMRC's decision. HMRC accepted his reasons for appealing out of time and offered to conduct a review of the decision under Taxes Management Act 1970 section 49Csection 49C Taxes Management Act 1970. On 15 February 2011 Mr Percival was notified of the review's conclusion to uphold the decision to refuse relief.
[7]Mr Percival now appeals to this Tribunal.
[8]Mr Percival's principal ground of appeal, as set out in the Notice of Appeal to the Tribunal, is that article 18 of the DTC contravenes various articles of the European Convention because the taxation of Government pensions is based on nationality. His grounds subsequently refer to the Human Rights Act 1998 and state that it forbids discrimination by nationality. It seems, however, that when referring to the "European Convention" in his grounds Mr Percival may have had in mind the treaties establishing the European Union because he goes on to mention Finanzamt Köln-Altstadt v SchumackerECAS (Case C-279/93) [1995] BTC 251 concerning the interpretation of what was then article 48 of the EEC Treaty.
[9]The basis of Mr Percival's complaint, as envisaged in...
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