Transfer of Assets reconsidered

Fisher round 3 (or is it 4?) - the Court of Appeal’s decision on the application of the transfer of assets abroad is out.

Which headline to pick? Transfer of Assets Code does not breach EU law? Motive defence decimated by Appeal Court? Beware- Court of Appeal holds you can “procure” a transfer made by a company even if you are a minority shareholder?

Any of those would do. In para 138 Newey LJ concludes:

“it seems to me that the UT was not entitled to interfere with the FTT's conclusion that Stephen and Peter were quasi-transferors; that there is no requirement for income tax to be avoided; that the motive defence is not available to Stephen or Peter; that section 739 was not incompatible with EU law in any relevant way; that none of the income of the SJG which was the subject of the assessments is to be regarded as too remote from the transfer of the business; and that the 2005-2006 and 2006-2007 assessments on Stephen were not defective.”

The decision is brief and takes no prisoners on the application of EU law on a move to Gibraltar. It is difficult to wonder whether there wasn’t a flavour of the post Brexit world in the speed with which it was dismissed. Essentially, relying on the CJEU jurisprudence (when it was a live question, I represented Gibraltar in Fisher on this point) that Gibraltar is part of the UK for these purposes, Newey LJ held: If “a Member State can legitimately structure its direct tax system in a way which discourages nationals of other Member States from working or setting up business in any of it, I cannot see how it could be improper for a host Member State to organise its direct tax system in a manner which disincentivised work or business in one or more parts of it. As a matter of EU law, that is what happened in the present case. The UK and Gibraltar are to be treated as belonging to the same Member State.” This should leave scope for the defence in other cross border TOAA cases The issue for the Fishers was that the destination was Gibraltar.

On the motive defence, it turns out there are circumstances where you can avoid taxation even if it is borne by someone else, so the Fishers have an income tax charge under TOAA because their customers avoided betting duty once their business was transferred to Gibraltar. Further, a non tax motive achieved by reducing your tax liability can be tax avoidance for these purposes: “the avoidance of betting duty and saving of the business were inseparable. The main purpose of the transfer of the business was to avoid betting duty and thereby to save the business: the two were perceived as going together. Put slightly differently, there can be no question of section 741 of ICTA applying because a transferor hopes that an intended avoidance of liability to taxation will achieve some further end. It will rarely, if ever, be the case that a transferor wishes to avoid liability to tax for the sake of it; in normal circumstances, a transferor will be intending to use the avoidance of tax to attain another object.” There is nuance in the judgment here which will require careful advice on a case by case basis.

On quasi transferors or who can procure a transfer made by a corporate (or trust?): the decision has effectively eliminated legal arguments that there are clear borders or rules here and held that the answer must always be a matter of fact. Newey LJ: “In the present case, the FTT asked itself whether Stephen, Peter and Anne had "procured" the transfer, approaching that on the basis that it involved "a question of who the transferors are in reality". It concluded that "the transfer was jointly procured by all three appellants" and "each of the appellants was in reality a transferor of the telebetting business". So far as Stephen and Peter are concerned, I do not think that conclusion can be faulted. The FTT cannot be said either to have misdirected itself as to the law or to have made a finding for which there was no evidential basis. With regard to Anne, the FTT said that she "entrusted her responsibilities to Stephen and Peter and was happy to go along with their decisions". Elsewhere in its decision, however, the FTT explained that Anne "had virtually nothing to do with the business"” On this basis Anne did not procure the transfer. Facts matter in all litigation and careful preparation even for the FTT is abidingly important. It saved Anne here. In very many cases it will now be necessary to form and record carefully the reasons for a view that any particular shareholder did not procure corporate transfer. The issue will also arise for trustees.

There are many other interesting issues to emerge. It is unlikely that anyone will advise on this area without reference to this decision … at least until the Supreme Court considers it all again.

How likely is that? I’d say it is likely if the Fisher family can face another round of litigation. It is most notable that Phillips LJ gives a dissenting judgment on the quasi transferor issue pointing out that the logical conclusion of the majority (ie Newey LJ with an “I agree” from Arnold LJ). Phillips LJ points out that minority shareholders in PLCs could not fall to be treated as quasi transferors (their only defence against a TOAA charge being that they might on the facts not have power to enjoy the income of the transferee co): “In my judgment it is wrong in principle, and illogical, to regard a minority shareholder as "procuring" an act by the company of which they are a member simply by voting in favour of (or otherwise supporting) that act. Unless such a shareholder forms some voting pact with other shareholders (by formal agreement or otherwise), a minority shareholder has no power themselves to procure any outcome, having to abide by the majority decision. If their vote contributes to a majority in favour of a transfer, they have supported that transaction, such that the membership of the company authorised the transaction, but cannot sensibly be said to have themselves procured it any more than a single voter at an election "procures" a change of government.”

link: https://www.bailii.org/ew/cases/EWCA/Civ/2021/1438.html#para138