UK and International Tax news
Supreme Court Judgment in Transfer of Assets Abroad Case
Monday 18th December 2023
The Supreme Court has upheld the sale of a UK business to a Gibraltar company as being outside the scope of the transfer of assets abroad legislation.
In HMRC v Fisher and another [2023] UKSC44, the appeal from the Court of Appeal concerned the transfer of assets abroad legislation, specifically s.739 ICTA1988, which specifies the circumstances in which an individual who transfers assets to a person overseas may be liable to pay tax on income arising from those assets after the date of transfer.
Four members of the Fisher family established a betting business which, from 1988, was run through a UK company [SJA). SJA specialised in “telebetting”, which involved the placing of bets by telephone. The Fishers decided to transfer their betting operations to Gibraltar, which at the time charged a significantly lower rate of betting duty. They initially set up a branch of SJA in Gibraltar and later incorporated a new company in Gibraltar [SJG].
In 2000, SJA and SJG entered into an agreement transferring the whole of SJA’s business (other than its betting shops in the UK) to SJG. The agreement was signed by one Fisher director on behalf of SJA and another Fisher director on behalf of SJG. At the time of the transfer, the shareholdings in each of SJA and SJG were held entirely by the Fishers in varying proportions.
HMRC issued assessments to tax to each of the three UK resident Fisher family members in respect of years of assessment falling between 2000/2001 and 2007/2008. Applying s.739 ICTA 1988, HMRC treated the profits of SJG as the deemed income of the Fishers in proportion to their respective shareholdings in the company. The three Fishers appealed to the FTT.
The FTT agreed with HMRC that, for the purposes of s.739, the Fishers should be treated as the transferors of the business sold by SJA to SJG. The UT allowed the Fishers’ appeal on the ground that the transfer of assets had been made by SJA and not the Fishers. The Court of Appeal by a majority allowed HMRC’s appeal.
The Fishers and HMRC appealed to the SC which has unanimously held that the Fishers were not either singly or collectively the transferors of the business that was sold by SJA to SJG. Lady Rose gave the judgment, with which all the other Justices agreed.
It was common ground that the appeal should be determined on the basis of the legislation as it stood between March 1997 and April 2007. In broad terms, s.739 is an anti-tax avoidance provision that applies where an individual resident in the UK transfers assets abroad with the result that income arising from those assets becomes payable to a person abroad. Where the individual resident in the UK retains the “power to enjoy” the income (for example, the individual is able to control how the income is spent), the income received by the overseas person is treated as income of the individual resident in the UK. It is not a requirement of the provision that the individual resident in the UK actually receives any of the income within the jurisdiction.
S.740 ICTA 1988 imposes liability on an individual resident in the UK who has received a benefit because of the transfer of assets outside of the UK but who did not themselves carry out the transfer.
The Fishers argued that, in order to fall within s.739(2), the taxpayer has to be the individual who transferred the assets as held by the House of Lords decision in Vestey v Inland Revenue Commissioners (Nos 1 and 2) [1980] AC 1148.
The SC held that s.739 was limited to charging individuals who transfer assets abroad, being the most natural interpretation of the legislation. HMRC argued that, notwithstanding that the legal transferor of the assets was SJA and not the Fishers, the Fishers should be treated as the transferors of the assets because together they owned the controlling interest in SJA. S.739 did not apply to an individual in relation to a transfer made by a company in which they are a shareholder, regardless of the size of their shareholding. There were no principled criteria set out in the statute which could be used to determine the circumstances in which a shareholder should be treated as responsible for a transfer made by a company.
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