The Queen (on the application of Geoffrey Richard Haworth) v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Sir Ross Cranston |
| Judgment Date | 23 May 2018 |
| Neutral Citation | [2018] EWHC 1271 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/4930/2016 |
| Date | 23 May 2018 |
[2018] EWHC 1271 (Admin)
Sir Ross Cranston
Case No: CO/4930/2016
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Giles Goodfellow and QC Ben Elliott (instructed by Levy & Levy) for the Claimant
Timothy Brennan QC and Christopher Stone (instructed by HMRC) for the Defendant
Hearing dates: 24–26 April 2018
Judgment Approved
INTRODUCTION
In this judicial review the claimant, Mr Geoffrey Haworth, challenges the decisions of the Commissioners for HM Revenue and Customs (“HMRC”) to issue him in 2016 with a follower notice and an accelerated payment notice in relation to gains arising to the trustees of a settlement from the disposal of assets during the 2000–2001 assessment year. The settlement is the Geoffrey Richard Haworth No 2 Life Interest Settlement, of which the claimant is the settlor and, along with his family, a beneficiary. It is referred to as “the trust” in this judgment. The notices were issued under the anti-tax avoidance provisions of the Finance Act 2014. A follower notice can be given where the principles laid down or reasoning given in a final judicial ruling would, if applied to the taxpayer's chosen arrangements, deny him the claimed tax advantage, and an accelerated payment notice can require him to pay the tax up-front. The notices can be issued at a stage before a tax appeal has been determined.
In outline the claimant contends that he is not chargeable in respect of the gains made because they were exempted from the charge to UK capital gains tax by virtue of the UK/Mauritius double tax treaty (“the treaty”). His argument is that the gains were realised when the trustees of the trust were resident in Mauritius, having replaced trustees in Jersey. Since the trustees were resident in Mauritius the “tie-breaker” of the place of effective management (“POEM”) in the treaty would resolve the question of residence in favour of Mauritius. The result is that Mauritius was the only jurisdiction with taxing rights over the gains. Mauritius did not impose tax on such gains, so that the intended effect of the scheme was that there was no relevant taxation in Mauritius, and no taxation in the UK either.
In this judicial review the claimant challenges the lawfulness and the procedure for the issue to him of the follower notice and the accelerated payment notice. In May last year Holgate J refused permission to apply for judicial review. Following an oral renewal hearing on 6 July 2017, Supperstone J granted permission in respect of grounds 1, 3, 3A, 5 and 6 of the grounds identified in the claimant's amended grounds. Permission was refused on grounds 2 and 4 which were not pursued. The remaining grounds contend that as a matter of interpretation of the relevant statutory provisions, the notices should not have been issued in his case and that, in any event, the notices that were issued are invalid as procedurally flawed.
In response HMRC contend that the claimant engaged in a tax avoidance scheme known in the trade as a “Round the World” (“RTW”) arrangement. Along with at least 100 others, he was trying to avoid capital gains tax of (in this case) nearly £9,000,000 by routing a disposal of trust assets through Mauritius. Its view is that the claimant's arguments have effectively been disposed of by the Court of Appeal in Smallwood v Revenue and Customs Commissioners [2010] EWCA Civ 778, [2010] STC 2045 (“ Smallwood”). It correctly applied the legislation in issuing the notices to the claimant and it was lawful and appropriate to do so.
BACKGROUND
The evidence
The evidence in this case comes importantly from the available documents, but there is also evidence in the form of statements from both sides. There is no statement from the claimant himself, although later in the judgment I refer to a statement he prepared over a decade ago in 2006. There are statements from Christopher Maslen, his tax adviser, and from Jonathan Claypole, his accountant.
On HMRC's part there are statements from five officials: Julie Elsey, the senior responsible officer for the implementation of the follower notice regime; John Bentley, the current compliance lead for the RTW compliance project; Kim Tilling, the former compliance lead for the RTW project; John Griffin, the senior officer in the counter-avoidance accelerated payments directorate, who made the decision to issue the accelerated payment notice in the claimant's case; and Lindsay Chalmers, a review officer within the review and litigation team of HMRC's Solicitors Office, who reviewed the representations made by the claimant's representatives in respect of the notices.
At the hearing the claimant never made an application for cross-examination on the basis that there was no need to do so due to the nature and quality of HMRC's evidence. If there had been an application it would have had to be considered in light of the practice that oral evidence is unusual in judicial review. In my view, its evidence in this case matches the high standard the courts expect from HMRC: R (on the application of City Shoes (Wholesale) Ltd) v Revenue and Customs Commissioners [2018] EWCA Civ 315; [2018] S.T.C. 762, [25], per Henderson LJ, approving Whipple J.
Devising the arrangements
The claimant and another taxpayer had worked together in the 1980s, but left their then employer and established their own companies. The other taxpayer formed Workplace Systems Group Ltd. By 2000 the claimant and the other taxpayer were both directors of TeleWare plc. The claimant and the trust had a fifty percent interest in that company, the balance being owned by the other taxpayer and trusts for the benefit of him and his family. The claimant and the other taxpayer decided to merge the two companies and float a new company on the London Stock Exchange, TeleWork Group plc. As part of the flotation shares would be sold by means of placing them with institutional investors.
The claimant was advised that he might avoid capital gains tax on the disposal of those shares, if the existing Jersey trustees of the trust resigned in favour of trustees resident in Mauritius, since there was no capital gains tax there. It is convenient to begin with a fax from the claimant's tax advisor, Mr Christopher Maslen, in mid-April 2000 about a draft tax clearance letter regarding proposed corporate transactions known as Project Tango. About a week later, on 20 April 2000, the claimant emailed Mr Maslen: “I am assuming that we will be forming a Trust each in Mauritius.”
On 24 April 2000, Mr Maslen wrote to Pinsent Curtis, solicitors, regarding a meeting earlier in the month between himself, Lindsay Pentelow of Mazars Neville Russell LLP, and leading counsel:
“Counsel has suggested that trustees could be appointed resident in a jurisdiction which has a suitable double taxation treaty with the UK. This would be followed by a disposal. UK resident trustees would be appointed before the end of the tax year in which the disposal takes place. The gains arising in the hands of the intermediate trustees could escape taxation.”
The same day, 24 April 2000, Mr Maslen sent a letter to Mr Pentelow explaining that the claimant and the other taxpayer had decided that Mr Lenagan would concentrate on “the value and prospectus matters” regarding the floatation, whereas he and the claimant “will be responsible for driving forward the shareholder planning issues” for both settlements. The letter continued:
“As the proposed measures anticipate the repatriation of the settlement after realisation of the gain in Mauritius, I envisage that the present trustees will appoint the shares to be realised on flotation to new trustees, either in Jersey or directly to trustees resident in Mauritius. UK trustees will then be appointed after the disposal in place of the trustees resident in Mauritius, so that the whole of the appointed fund will have been repatriated.”
The following month, on 12 May 2000, Mr Maslen sent a further letter to Pinsent Curtis, referring to a meeting to be held with tax counsel the following week. Mr Maslen stated that it would be helpful to have prepared drafts of the documents for the retirement and appointment of new trustees in Mauritius, and for the subsequent retirement of the offshore trustees in favour of the UK trustees. However, he was anxious “in the giving of instructions that the process could not be construed as a series of pre-ordained transactions.”
In a fax of 25 May 2000 Mazars outlined the tax planning to the Jersey trustees of the other taxpayer's settlements, the timescale for the appointment of Mauritian trustees, the flotation of the company and the appointment of UK trustees to take advantage of the Mauritian-UK double tax treaty.
Mr Maslen wrote to Mr Chandra Gujadhur of Deloitte & Touche Offshore Services Ltd in Mauritius on 1 June 2000, inquiring on behalf of the settlor of several trusts, written under English law, with trustees resident in Jersey. The settlor had tax planning needs, and Mauritius trustees might be suitable to meet them. After they were appointed,
“they will be asked to undertake various steps…
a) extension of class of beneficiaries
b) the appointment of part of the funds on discretionary trusts
c) the appointment of capital to beneficiaries
d) the disposal of some trust shareholdings
e) the onward appointment of UK trustees, probably at the end of October 2000.”
In a letter to Mr Haworth on 2 June 2000, Mr Maslen noted the suggestion of Mazars that they should identify and check the credentials of the Mauritius trustees. Mr Maslen also noted that there was a suggestion that Canada could still...
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