Re McGuckian (No 1)
| Jurisdiction | Northern Ireland |
| Judgment Date | 13 September 1994 |
| Date | 13 September 1994 |
| Court | High Court (Northern Ireland) |
Court of Appeal (Northern Ireland).
Hutton LCJ, Carswell and Kelly L JJ.
Andrew Park QC and Ronald Weatherup (instructed by the Solicitor of Inland Revenue) for the Crown.
Michael Hart QC, Michael Ashe and Michael Keogh (instructed by Mills Selig, Belfast) for the taxpayer.
The following cases were referred to in the judgment:
Bath and West Counties Property Trust Ltd v Thomas (HMIT)WLR[1977] 1 WLR 1423
Burford v Durkin (HMIT) TAX[1991] BTC 9
Craven (HMIT) v White ELRTAX[1989] AC 398; [1988] BTC 268
Dolan v O'Hara DNI[1975] NI 125
Eilbeck (HMIT) v Rawling ELR[1982] AC 300
Ensign Tankers (Leasing) Ltd v Stokes (HMIT) ELRTAX[1992] 1 AC 655; [1992] BTC 110
Fleming (HMIT) v London Produce Co Ltd WLR[1968] 1 WLR 1013
Foulsham v Pickles ELRELRELR[1925] AC 458 (HL); [1924] 1 KB 323 (CA); [1923] 2 KB 413
Furniss (HMIT) v Dawson & Ors ELRTAX[1984] AC 474; [1984] BTC 71
Getty Oil Co v Steele (HMIT) TAXTAX(1990) 63 TC 376; [1990] BTC 312
Gurney (HMIT) v Petch TAX[1994] BTC 274
Hart v Briscoe & Ors ELR[1979] Ch 1
Hughes (HMIT) v Viner TAXTAX(1985) 58 TC 437; [1985] BTC 156
IR Commrs v Burmah Oil Co Ltd TAXTAX(1981) 54 TC 200; [1982] BTC 56
IR Commrs v Fitzwilliam & Ors WLRTAX[1993] 1 WLR 1189; [1993] BTC 8003
IR Commrs v Gibbs & Ors ELR[1942] AC 402
IR Commrs v Westminster (Duke of) ELR[1936] AC 1
Moodie v IR Commrs & Anor WLRTAX[1993] 1 WLR 266, [1993] BTC 85
Paget v IR Commrs ELR[1938] 2 KB 25
R v General Commrs for Freshwell, ex parte Clarke TAX(1971) 47 TC 691
Ramsay (WT) Ltd v IR Commrs ELR[1982] AC 300
Valleybright Ltd (in liq) v Richardson (HMIT) TAXTAX(1984) 58 TC 290; [1985] BTC 31
Appeal to Court of Appeal in Northern Ireland - Case stated by appeal commissioners not transmitted to appropriate department by taxpayer believing transmission by Revenue sufficient - Whether transmission by taxpayer when both parties had appealed necessary - Whether requirement mandatory - Taxes Management Act 1970 section 58 subsec-or-para (2)Taxes Management Act 1970, s. 58(2), County Courts (Northern Ireland) Order 1980, art. 61(3).Income tax - Tax avoidance scheme - UK resident transferred shares in Irish company to offshore trust by a sequence of transactions - Trust assigned dividends to UK company - 99 per cent of dividend paid to trustee as purchase price of right to receive dividend trustee - Whether liability to UK tax either under Ramsay principle or under anti-avoidance provisions - Whether assessment valid if made under wrong provision - Whether treated as made under another provision - Whether case to be remitted to special commissioner to consider liability under correct provision - Income and Corporation Taxes Act 1970 section 470 section 478Income and Corporation Taxes Act 1970, ss. 470, 478 (Income and Corporation Taxes Act 1988 section 730 section 739 section 741 section 742ss. 730 and 739, 741, 742 of the 1988 Act) - Taxes Management Act 1970 section 56 subsec-or-para (6) section 114Taxes Management Act 1970, ss. 56(6), 114.
This case concerned appeals by the Revenue against the decision of a special commissioner discharging an assessment to income tax in the sum of £400,055, stated to be on income within Ch. II, Pt. XVII of the Income and Corporation Taxes Act 1970 (effectively Income and Corporation Taxes Act 1970 section 478 subsec-or-para (1)s. 478(1)) for the year 1979-80 and by the taxpayer against the commissioner's decision upholding a similar assessment in the sum of £492,676 for the year 1980-81.
The taxpayer and his wife, who were resident in Northern Ireland, held all the issued share capital in a successful company incorporated in the Irish Republic ("Ballinamore") in 1972. By 1976 Ballinamore had large revenue reserves, not having paid any dividends.
In 1976, in order to avoid any liability to a wealth tax in the Republic of Ireland, or in the UK if such a tax were to be introduced, the taxpayer caused to be implemented a tax avoidance scheme the object of which was to divest the taxpayer and his wife of the shares in Ballinamore while retaining control of the company.
It was hoped to achieve those ends by reducing the assets held by Ballinamore and the value of the shares in the company in case a wealth tax was introduced while attempting to avoid liability to income tax on sums paid out by Ballinamore by receiving the proceeds in the form of capital rather than dividend payments.
Numerous complex transactions were involved, the principal features of the scheme being: the payment out to the shareholders of Ballinamore of large sums by way of dividend; the setting up of a trust under which the Ballinamore shares would be held for the benefit of the taxpayer and his wife by trustees resident out of the jurisdiction; and the assignment by the trustees of their rights to dividends expected to be declared and paid by Ballinamore. The amount received by the assignee was in fact 99 per cent of the dividend.
The special commissioner allowed the taxpayer's appeal against the 1979-80 assessment but was not satisfied that the assignment by the trustees of their rights to the dividend paid in the year 1980-81 had been executed before the declaration of the relevant dividend so that the dividend belonged, at least for a short time, to the trustee and the assessment to tax under Income and Corporation Taxes Act 1970 section 478s. 478 of the 1970 Taxes Act for that year was confirmed.
Both parties expressed dissatisfaction with the decision and required the special commissioner to state a case for the opinion of the Court of Appeal in Northern Ireland within the requirements of the Taxes Management Act 1970, Taxes Management Act 1970 section 56 subsec-or-para (1) section 56 subsec-or-para (2)ss. 56(1) and (2) as applied to Northern Ireland by Taxes Management Act 1970 section 58 subsec-or-para (2)s. 58(2). However, the taxpayer did not transmit the case to the Master (Queen's Bench and Appeals) within 14 days as required by eu-directive notrep article 61art. 61 of the County Courts (Northern Ireland) Order 1980 which governed that stage of the proceedings.
The Revenue transmitted the case to the Master in time and the Belfast solicitor acting for the taxpayer said that he had been given the impression that it was not necessary to transmit the taxpayer's copy of the case as well. The solicitor, therefore, reasonably took no further procedural steps.
However, the Revenue applied to the court to strike out the taxpayer's appeal on the ground that the procedural requirements had not been complied with in relation to the 1979-80 assessment and contended that the Ramsay principal should be applied to the 1980-81 assessment. They also contended that the court should treat the 1980-81 assessment as an assessment under the Income and Corporation Taxes Act 1970,Income and Corporation Taxes Act 1970 section 470s. 470 rather than under Income and Corporation Taxes Act 1970 section 478s. 478 on the basis that the inspector had made a mistake within the Taxes Management Act 1970, Taxes Management Act 1970 section 114s. 114.
Held, striking out the taxpayer's appeal and remitting the Revenue's appeal to the special commissioner with a direction to consider the matter on the basis that an assessment was made under s. 470 of the Income and Corporation Taxes Act 1970.
1. The court had no jurisdiction to entertain the taxpayer's appeal. The requirement that the applicant must transmit the case stated to the Master within 14 days of dispatch by the commissioners' clerk to the applicant was mandatory. It was not sufficient that an identical case was transmitted by the Revenue in respect of their separate appeal.
2. The court would exercise its discretion under the Taxes Management Act 1970, Taxes Management Act 1970 section 56 subsec-or-para (6)s. 56(6) to remit the case to the special commissioner to treat the assessments as having been made under the Income and Corporation Taxes Act 1970, Income and Corporation Taxes Act 1970 section 470s. 470. The Revenue were not aware of important details of the scheme until a late stage, in particular, the existence of the trust and the assignment of dividends to a UK company. On the information available, an assessment under Income and Corporation Taxes Act 1970 section 470s. 470 could not have been made sooner: Foulsham v Pickles ELR[1925] AC 458 and Bath and West Counties Property Trust Ltd v Thomas (HMIT) WLR[1977] 1 WLR 1423 followed.
3. (Kelly LJ dissenting) The steps constituting the scheme could not be regarded as a single composite transaction into which a non-commercial step, namely the assignment of the dividends by the trustees, had been introduced. The transaction was exactly what it purported to be and it altered the position of the parties in that the trustees did not receive the full amount of the dividends but only 99 per cent. Therefore, if the assignment were to be ignored, tax would be charged on the full amount which the trustees had not received:Furniss (HMIT) v Dawson TAX[1984] BTC 71distinguished.
4. The inspector had not made a mistake such as was contemplated byTaxes Management Act 1970 section 114s. 114. He made the assessment under Income and Corporation Taxes Act 1970 section 478s. 478 which was what he intended to do, and therefore the assessment under Income and Corporation Taxes Act 1970 section 478s. 478 could not be treated by the court as an assessment under Income and Corporation Taxes Act 1970 section 470s. 470 by virtue of the Taxes Management Act 1970,Taxes Management Act 1970 section 114s. 114.
1. On 13-17 July 1992 and (following an application herein made on 7 December 1992) on 26 January 1993 I (Mr Brian O'Brien), one of the special commissioners, heard appeals by Mr John Brendan McGuckian ("Mr McGuckian") against assessments to income tax made upon him under the provisions of Ch. III of Pt. XVII...
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