R(Mr Ian Isaac Shiner and Another) v HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mummery,Lord Justice Sullivan,Lord Justice Tomlinson |
| Judgment Date | 25 July 2011 |
| Neutral Citation | [2011] EWCA Civ 892 |
| Date | 25 July 2011 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: C1/2009/1224 |
[2011] EWCA Civ 892
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Claim No. CO/11073/08
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Mummery
Lord Justice Sullivan
and
Lord Justice Tomlinson
Case No: C1/2009/1224
In the Matter of an Application for Judicial Review
MR DAVID GOLDBERG QC and MR CONRAD McDONNELL (instructed by PricewaterhouseCoopers Legal LLP) for the Appellants
MR RABINDER SINGH QC, MR KIERON BEAL and MR JAMES RIVETT (instructed by HMRC Solicitor's Office) for the Respondents
Hearing dates: 2 nd, 3 rd and 4 th November 2010
Not an appeal
We are sitting in the Court of Appeal, but not on an appeal. No first instance court has given a substantive judgment to appeal. The court has itself heard the substantive claim for judicial review. An earlier order made by a different constitution of three (of whom two have since ceased to be members of the court) directed that the application, for which it gave permission, should be heard in the Court of Appeal.
The Claim Form defines the claimants as "the Taxpayers." I will call them the claimants. One of them has a law degree and is now a retired magistrate. They are both directors of a building company. They are both resident in the United Kingdom. Their dispute is with Her Majesty's Revenue and Customs (HMRC) about what is described as the "extreme, unfair and unprecedented retrospective effect" of legislation overriding all double taxation treaties so as to bring into charge to tax in the UK any share of the income of an overseas firm to which a UK resident is entitled. It is claimed that the changes caused serious concern and potential hardship to the claimants.
The claimants' case is that HMRC cannot lawfully deny their claim to relief from payment of UK income tax for past years of assessment on income received by them in the UK from trusts in the Isle of Man. The claim to relief is based on a Double Taxation Arrangement (DTA) made with the Isle of Man in 1955. It was subsequently amended. By virtue of their participation in the arrangements of a tax avoidance scheme located in the Isle of Man the income received by them in the UK was channelled through interest in possession trusts established by the claimants in the Isle of Man.
Under purely domestic legislation having retrospective, as well as prospective, effect, the claimants are plainly liable to pay UK income tax for the past years of assessment. However, as we shall see, this is not a run-of-the-mill domestic income tax tussle with HMRC. The support of European Union (EU) law and the European Convention on Human Rights (the Convention) has been enlisted.
The application is for judicial review of the retrospective application of s.58 of the Finance Act 2008 (the 2008 Act). That made amendments to the legislation on UK tax affecting the income of foreign partnerships, UK residents and DTAs with the UK. The claimants' case is that the retrospective provisions of s.58 are contrary to and incompatible with the paramount provisions of Article 56 of the European Community Treaty (prohibition of restrictions on free movement of capital between Member States). That prohibition is now incorporated in the same terms in Article 63 of the Treaty on the Functioning of the European Union (TFEU). As Article 56 was the relevant provision in force at the material time, I will continue to refer to it rather than to its replacement.
The claim is for a declaration that the amendments in s.58 are incompatible with Article 56 and that, as such, they cannot be applied lawfully by HMRC. Orders are also sought quashing the policy decisions of HMRC to enforce the retrospective aspects of s.58, as set out in a letter of 18 August 2008 sent by HMRC to the claimants. The claim for judicial review focuses on the terms of that letter.
Article 56 is not the only arrow in the claimants' judicial review quiver. In common with Mr Huitson, who has brought an appeal with which this judicial review application was directed to be listed, the claimants say that the retrospective operation of s.58 on claims to relief from UK income tax on income received in the UK from trusts in the Isle of Man is incompatible with the fundamental human right to enjoyment of one's possessions. Protection from unjustified interference with that right is derived from the Human Rights Act 1998 which incorporates the provisions of Article 1 of the First Protocol to the Convention.
In a sentence, this court has to decide whether it would be contrary to EU law and incompatible with Convention rights for HMRC to apply to the claimants and, in the case of Convention rights, to apply to Mr Huitson, amendments to primary fiscal legislation aimed at retrospectively nullifying the benefits of the tax avoidance scheme used by them.
I will begin with an overview of the proceedings that present those novel challenges based on wide-ranging arguments.
Overview of proceedings
The basic facts are that, from 2005 onwards, the claimants participated in a marketed tax avoidance scheme set up in the Isle of Man. It is essentially the same Manx partnership and trust set up as is described in our judgments in Huitson. The underlying object of the scheme was to channel to the claimants in the UK the profits of Isle of Man partnerships through interest in possession trusts established by them in the Isle of Man. The aim was to take advantage of the provisions of paragraph 3(2) of the DTA of 1955 between the United Kingdom and the Isle of Man as entitling them to claim relief from UK income tax on the payments received by them in the UK from the Manx trusts.
The focus of the challenge is on the alleged incompatibility of the retrospective application of the provisions in s.58 with Article 56. Section 58 purported to amend the previous fiscal legislation relating to the foreign partnerships, UK residents and the operation of DTAs contained in s.858 of the Income Tax (Trading and Other Income) Act 2005. The specific aim of the amendments was to render the Manx tax avoidance schemes ineffective beyond doubt and to make the claimants and other users of the scheme liable to pay UK income tax for past years of assessment on the income received by them in the UK from the Manx trusts.
The text of Article 56, which the parties have supplied to the court in different language versions, provided in the English language version that:-
"1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.
2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited. "
It is common ground that the Article has direct effect and that it is capable of conferring rights on individuals enforceable in the domestic legal order. The issues of interpretation and applicability of Article 56 to this case canvassed in the detailed written and oral submissions address almost every aspect of its very wide terms, save for the numbers and the full stops. What, on the facts of this case, is the relevant "capital"? If "capital" is involved, has there been any "movement" of it? If so, was that movement between a Member State (the UK) and "a third country"? (thereby raising an intriguing and possibly obscure question of the status of the Isle of Man under EU law). If so, is such movement of capital affected by any "restrictions" on it in s.58? If so, are such restrictions justified? Is this court able to give clear and confident answers to the questions of interpretation of Article 56? If not, is it necessary to refer questions to the Court of Justice for rulings in order to determine the judicial review application?
The application for permission to bring judicial review proceedings raising these questions, which was issued on 17 November 2008, has not been plain sailing for the claimants. On 3 June 2009 Stanley Burnton LJ refused permission to bring judicial review proceedings based on the Article 56 point. He also stayed the Convention claim pending the outcome of Mr Huitson's proceedings. He later granted permission to bring judicial review proceedings based on Convention grounds.
By an order dated 26 May 2010, this court (Waller, Rix & Wilson LJJ) granted permission to the claimants to apply for judicial review seeking a declaration of incompatibility with Article 56 and for an order quashing the decision of HMRC on retrospectivity as reflected in a "decision letter" dated 18 August 2008. The court granted an extension of time for the application.
The order directed that the application should be listed at the same time as the appeal in the case of R (Huitson) v. HMRC [2011] QB 174 in which s.58 is alleged to be incompatible with Article 1 of the First Protocol to the Convention as set out in Schedule 1 Part II to the 1998 Act. Although the judicial review application and the Huitson appeal were heard sequentially at the same hearing and they overlap to some extent, it is more convenient to hand down separate judgments than a composite judgment. They can be read together for a fuller picture of the dispute about s.58 of the 2008 Act, Article 56 of the EU Treaty and Article 1 of the First Protocol to the Convention.
In a tiny nutshell the main point forcefully...
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