Rangers case (Murray Group Holdings Ltd v HMRC)
| Jurisdiction | UK Non-devolved |
| Judgment Date | 29 October 2012 |
| Neutral Citation | [2012] UKFTT 692 (TC) |
| Date | 29 October 2012 |
| Court | First Tier Tribunal (Tax Chamber) |
[2012] UKFTT 692 (TC)
Mr Kenneth Mure, QC, Dr Heidi Poon, CA, CTA, PhD, S A Rae, LLB., WS
Andrew Thornhill QC, Mark Studer, Jonathan Bremner and Thomas Chacko, Barristers, appeared for the Appellants
Roderick N Thomson, QC., instructed by the Office of the Advocate General, appeared for the Respondents
Income tax and NIC - Income and Corporation Taxes Act 1988 section 19Sch. E - emoluments/earnings - tax avoidance scheme - remuneration trust - employees' individual sub-trusts - "protectors" - (1) whether payments by employer into trust represent emoluments subject to PAYE and NIC - (2) whether benefits (particularly loans) derived by employees from the remuneration trust represent emoluments subject to PAYE and NIC - (3) "Ramsay" doctrine - whether applicable - whether trust and loan arrangements artificial and fall to be disregarded - no - appeal allowed.
The First-tier Tribunal decided that the taxpayer companies' payment of monies into a trust and the benefits, particularly the loans, that the employees derived from such trust, were not emoluments. As funds were not placed unreservedly at the employee's disposal and as there was no absolute transfer of funds from employer to employee, no pay as you earn ("PAYE") and National Insurance contributions ("NICs") liabilities arose. The Tribunal also decided that the trusts and loans arrangements were genuine legal events with real legal effects, and not a tax avoidance scheme that should be disregarded; hence, the doctrine in WT Ramsay Ltd v IR CommrsTAX(1981) 54 TC 101 ("Ramsay") did not apply.
The taxpayer companies' appeal related to a series of disputed assessments arising out of the funding and operation of an employees' remuneration trust ("the trust").
The taxpayers ("MGH", "MGML", "MGHL", "MIHL" and "RFCL") were members of a group of companies ("the group"). They were involved in metal and other trading, mining, property, and commercial investment.
In April 2001, MGML set up the trust by a definitive deed. Several sub-trusts were established subsequent to the date of the definitive deed. Those were in name of individual employees of companies in the group and bore to be for the benefit of their families individually.
In establishing the sub-trust, the employing company would have the employees complete a letter of wishes, together with a loan application on their own behalf. Those would be submitted to the trustee. A standard form of deed to create the sub-trust would then be provided by an adviser to the group. The employing company would pay a contribution to the principal trust which, at its discretion, would set up a sub-trust in the name of the selected employee. On those occasions, the employing company would advance monies to the principal trust and, without exception, a sub-trust in name of the employee was established. Loans for the full amount advanced for an extended term and on a discounted basis were granted by the trustees to the employee.
The group's employees, other than footballers, had no contractual right to a bonus. However, a practice had developed within the group to pay, on a discretionary basis, annual bonuses depending on the work performance of the employees and the profitability of their employing company.
In the case of certain footballers, the terms of engagement were commonly recorded in two documents, one was a contract of employment and the other was a side-letter. The side-letter would provide ordinarily for the constitution of a sub-trust in name of the footballer.
In the present case, the taxpayers submitted that the employees had never become entitled to monies paid into the trust. Thus, the employees would not ordinarily be taxable on the monies. They also submitted that a discharge of an employer's obligation to the employee would not suffice to establish that payments of earnings had been made. Relying on Sempra Metals Ltd v R & C CommrsSCD(2008) Sp C 698 ("Sempra Metals"), they submitted that no payment of earnings had been made because the funds had not been placed unreservedly at the disposal of the employees.
HMRC contended that the trusts and loan arrangements should be viewed in a broader context, i.e. a practical and commercial reality in which payments were made by the taxpayers, and where those were invariably received by the favoured employees or footballers and enjoyed in effect absolutely by them. They also submitted that the structures were a scheme devised purely for tax avoidance purposes. Therefore, the anti-avoidance principles set out initially in Ramsay and other related decisions could be invoked to extend the charges on earnings to the loans.
(2) Whether payments by employer into the trust and benefits, particularly the loans, derived by employees, represented emoluments subject to PAYE and NICs.
(3) Whether the trusts and loans arrangements were artificial so that the Ramsay doctrine would apply and the arrangements, disregarded.
Held, Held, allowing the taxpayer's appeal:
In respect of the first issue, the Tribunal decided that funds had to be placed unreservedly at the employee's disposal for payment to result. Thus, the acceptance of loans by the employees could not amount to payment (Garforth (HMIT) v Newsmith Stainless LtdTAX(1979) 52 TC 522 and Aberdeen Asset Management plc v R & C CommrsTAX[2012] BTC 1514, considered).
In the case of the executive bonuses and the footballers side-letters' obligation, the benefit fell within the taxpayers' description of a mere discharge of an employer's obligation to the employees (Sempra Metals, considered). While the employees would expect loan access to the payment, they would not have absolute entitlement to it.
The form of the loan document was sufficient to create a liability to repay. The extent of HMRC's criticism at its highest was that the loans to the employees, who were also protectors of their sub-trust, were arguably voidable as ultra vires. They did not argue that the loans were a sham or irrecoverable. To the date of this appeal, none of the loans had been reduced or challenged as voidable. Even if the trust structure were to fall, the loans would still remain loans. The payment of monies into the trust did not represent payment of emoluments or earnings. There was no absolute transfer of funds from employer to employee; hence, PAYE and NIC liabilities did not arise.
In respect of the second issue, the Tribunal held that the Ramsay doctrine did not apply in this case. In Ramsay, the rule was considered to strike at any non-commercial elements in a tax avoidance scheme. The rule was reviewed by the House of Lords in Barclays Mercantile Business Finance Ltd v Mawson (HMIT)TAX[2004] BTC 414 and that interpretation was considered there to be too sweeping. As now refined, the rule emphasised that it was a principle of interpretation: where a commercial concept was introduced into the legislation, then any non-commercial aspects in the transaction could possibly be ignored; and where the legal nature was of the essence, then the legal effects should prevail.
Here, the trusts and loans arrangements were genuine legal events with real legal effects. The employees benefiting did not obtain an absolute legal entitlement to the monies. Having regard to the legal effect of the trust and loan structures, the employees' entitlement or, rather, expectation was to no more than a loan. That was not altered by the employees' status and powers as protectors of their sub-trust. The fundamental structure could not be revised by the employees, as protectors, to confer absolute rights.
The trust or loan scheme was essentially straightforward. It did not include a complicated sequence of stages. The extent of the employer's obligation was to make a payment into the trust. The trusts and loans arrangements bore to be of legal effect. Loans were discretionary although, in fact, they were invariably granted. But that was the extent of the employees' benefit. Whether the arrangement was viewed commercially or legalistically, the inexorable conclusion was that the payments into the trust became a loan and no more. They were not paid over absolutely and so did not become earnings or emoluments. The liability to make repayment was not a remote contingency which might fall, in the context of a purposive construction, to be disregarded as too remote for practical purposes (Astall & Anor v R & C CommrsTAX[2009] BTC 631, considered).
We have been unable to reach a unanimous view. The following decision represents the joint (majority) opinion of Mr Mure and Mr Rae. All references to the Tribunal's views and inferences therein should be construed as referring to their views only. The dissenting opinion of Dr Poon is added as an Appendix and should be read independently.
1.This Appeal relates to a series of disputed assessments arising out of the funding and operation of an Employees' Remuneration Trust ("the Trust") established by the Murray Group for the benefit of its employees and their families. The five Appellant companies are members of the Group.
2.The Murray Group consists of around 100 companies involved variously in metal and other trading, mining, property, and commercial investment. There is principally Murray International Holdings Ltd ("MIH"), the ultimate holding company. It has one subsidiary, Murray Group Holdings Ltd ("MGHL"), also a holding company. One of its subsidiaries is Murray Group Management Ltd ("MGML"), which provides management services to the Group. The Group includes Rangers Football Club too ("Rangers"). In April 2001 the management company of the Group set up the Trust. Other companies in the Group subsequently participated in the scheme. The companies would pay monies into the Trust with a direction to the Trustees that a sub-trust be established and funded for the family of a particular employee. Also a loan facility (at...
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