The European Commission has concluded that Luxembourg did not breach EU state aid rules by not taxing certain profits of McDonald’s in that jurisdiction.
The Commission’s investigation, launched in December 2015, focused on whether the non-taxation resulted from a misapplication of national laws as well as the Luxembourg-US Double Taxation Treaty. The Commission sought to establish whether such non-taxation amounted to state aid through illegal tax benefits, whereby McDonald’s was granted an advantage not available to other entities in a comparable situation.
McDonald’s Europe Franchising had not paid any corporate tax in Luxembourg since 2009, whilst recording substantial profits in that period, for instance in excess of €250 million in 2013. The profits originated from franchise royalties in Europe and Russia for the use of the McDonald’s brand and related services. These royalties were directed internally to McDonald’s US branch. The Luxembourg authorities held in 2009 that McDonald’s Europe Franchising did not owe any corporate tax in that jurisdiction, since the profits were due to be taxed in the US according to the Luxembourg-US Double Taxation Treaty. However, the profits were in fact not subject to taxation in the US as McDonald’s Europe Franchising was not a ‘permanent establishment’ and thus did not have a taxable presence in the US under US law. At the same time, the Luxembourg authorities viewed the US branch as a ‘permanent establishment’ and thus the place where most of the profits should be taxed under Luxembourg law. This conclusion led to the double non-taxation of the relevant profits in Luxembourg and the US.
The Commission concluded that the Luxembourg authorities had been correct in exempting McDonald’s US branch, since that branch was indeed a ‘permanent establishment’ under the Luxembourg tax code. That the Luxembourg authorities knew the US branch was simultaneously exempt from tax under US law when they decided not to tax that branch under Luxembourg law did not constitute illegal state aid. However, to prevent such double non-taxation in the future, Luxembourg has now drafted amendments to its tax code which are being discussed in the national parliament. The legislative proposals aim to tighten the rules on determining the existence of a permanent establishment, as well as requiring companies claiming to have a taxable presence abroad to submit confirmation that they are indeed subject to taxation in the other country.
Causation in a contractual dispute is governed by application of the contract. In law context is everything. These principles were of central importance to the decision of the UK Supreme Court in Navigators Insurance Co Ltd v Atlasnavios-Navegacao Lda (The B Atlantic) [2018] 2 WLR 1671. Persons unknown, probably associated with a drugs gang attached three bags of cocaine weighing 132 kg to the hull of the B Atlantic in Venezuela which was loading a cargo of coal for Italy. The drugs were discovered, the vessel detained and this led to the master and the chief officer being convicted by a local jury and sent to prison for 9 years, when they were innocent. This miscarriage also resulted in the confiscation of the vessel. The shipowners who had lost their vessel through no fault of their own or the crew, claimed on the War Risks Policy, which incorporated the Institute War and Strikes Clauses Hulls—Time (1/10/83):
“1. PERILS
Subject always to the exclusions hereinafter referred to, this insurance covers loss of or damage
to the vessel caused by
…
1.2 capture seizure arrest restraint or detainment, and the consequences thereof or any attempt
thereat
…
1.5 any terrorist or any person acting maliciously or from a political motive
1.6 confiscation or expropriation.
…
3. DETAINMENT
In the event that the Vessel shall have been the subject of capture seizure arrest restraint detainment
confiscation or expropriation, and the Assured shall thereby have lost the free use and disposal of the
Vessel for a continuous period of [6] months then for the purpose of ascertaining whether the Vessel
is a constructive total loss the Assured shall be deemed to have been deprived of the possession of
the Vessel without any likelihood of recovery ….
4. EXCLUSIONS
This insurance excludes
4.1 loss damage liability or expense arising from
…
4.1.5 arrest restraint detainment confiscation or expropriation … by reason of infringement of any customs or trading regulations
…”
These are standard terms used internationally which were the product of the reform by Lloyd’s of its marine insurance forms in 1983, using words from the earlier forms. The problem for the shipowners was the Exclusion. The case law, on the basis of which the parties are taken to have contracted, established that infringement of customs regulations included smuggling. The shipowners asserted that the persons unknown were persons “acting maliciously” and that the detention and confiscation of the vessel was not “by reason of….[the] infringement…”, it was caused by the malicious act .
In the lower courts it had been common ground that the persons unknown acted “maliciously”. Arnould on Marine Insurance (18th edition, 2013) stated its opinion that spite or ill will against the shipowners or their ship was not required.
The Supreme Court dismissed the owners’ claim holding: (1) contrary to the concession made by the insurers before the trial judge and Arnould’s opinion, that “maliciously” was governed by precedent decided nearly 50 years ago, deciding in this context that spite or ill will against owners or the vessel was required, that the Supreme Court should decide the case on the correct meaning, and that there was no malice by the drug smugglers, only the desire to make a profit out of smuggling; and (2) the loss arose from detention and confiscation of the vessel. Either was sufficient to decide the case, and so shipowners were not prejudiced by the Supreme Court disregarding the concession. It was important for the international insurance market that the correct meaning was applied.
On (1) textbook writers do not have the benefit of adversarial argument and can make mistakes. In this case the editors had misunderstood what had been decided by the case law. On (2), the causation issue had to be determined giving proper contractual scope and effect to the Exclusion, and not so as to disregard or emasculate it. What is insured against is given by the Perils and the Exclusions, read together.
The consequence is that a shipowner if he wants cover if his ship is lost because of a third party smuggling, will need special words to do this. Smuggling by the crew is covered under the Hull Policy as barratry, a wrongful act wilfully committed by the master or crew to the prejudice of the owner.
Shipowners had a labyrinth of points which were, or could have been, deployed. These are examined in “Smuggling,Marine Insurance, Causation and Interpretation” [2018] Lloyd’s Maritime and Commercial Quarterly 482 (Steven Gee QC).
The UK government is reportedly prepared to resist the European Commission’s challenge in the Court of Justice of the European Union (CJEU) over the UK’s VAT treatment of commodity derivatives trading.
The Commission has issued a formal notice of infraction proceedings (dated 8 March 2018) as well as a reasoned opinion (dated 19 July 2018) to the UK. Both communications are pursuant to Article 258 of the Treaty of the Functioning of the European Union (TFEU), and concern Article 394 of Directive 2006/112/EC (the VAT Directive) on derogations related to certain commodity derivatives trading under the Terminal Markets Order 1973. This Order is a statutory instrument that permits for exchange-traded derivative transactions in spots, futures and options on commodity contracts to be zero-rated for UK VAT. The zero-rating of these transactions is a permitted special measure under Article 394, which allows Member States to simplify VAT collecting rules. The Commission takes the view that the development of the UK’s zero-rating treatment of such transactions now contravenes EU VAT rules, and requests that the relevant UK VAT rules should be aligned with EU rules.
The March formal notice referred to the UK’s extension of the scope of a VAT derogation that consists of zero-rating transactions carried out on a number of commodity markets. The Commission contends that since the UK notified that derogation to the Commission in 1977, the UK has considerably extended the scope of the measure, which is no longer limited to trading in the commodities originally covered by the derogation. The Commission further holds that the extension of the scope of such a ‘standstill’ derogation is not permitted under EU law. The Commission adds that the derogation is also generating ‘major distortions of competition to the detriment of other financial markets within the EU’, following some informal complaints from other Member States.
As the UK did not act within the stipulated two months since the date of the formal notice, in line with procedure the Commission has now sent a reasoned opinion to the UK government. For the time being and pending any legislative changes, the UK’s tax treatment of commodity derivatives remains as before. However, if the Commission considers the UK’s response to its communications to be insufficient, it can bring the matter before the CJEU.
Justice Secretary David Gauke is reportedly set to launch a consultation on reforming English family law to allow for so-called ‘no-fault’ divorces, where neither spouse is being blamed for the breakdown of the marriage.
Calls for an overhaul of the law strengthened after the much publicised case of Owens v Owens [2018] UKSC 41 (25 July 2018), where the husband opposed his wife’s divorce petition. Owens went all the way to the Supreme Court, where it was held that the examples of the husband’s alleged unreasonable behaviour relied on were not sufficient to satisfy the test in s. 1(2)(b) Matrimonial Causes Act 1973, namely ‘that the respondent has behaved in such a way that the petitioner cannot reasonably be expected to live with the respondent’. In English law, the grounds for divorce are limited to adultery, desertion or unreasonable behaviour. Spouses can also divorce if they have been separated for more than two years and both are in agreement, or for more than five years if either contests the petition.
Both Lord Wilson (delivering the majority judgment) and Lady Hale (delivering one of two concurring minority judgments) expressed significant unease at the outcome of the case, but felt bound to uphold the husband’s argument on the basis of the law as it currently stands. In particular, the behaviour referred to by Mrs Owens consisted of a number of alleged incidents which on Mrs Owens’ case, while individually minor, when viewed together indicated‘authoritarian, demeaning and humiliating conduct‘. Based on a correct interpretation of the relevant subsection, the court concluded that Mr Owens’ alleged behaviour did not constitute unreasonable behaviour. While contested final hearings for divorce petitions are few and far between – as Lord Wilson remarked, only 0.015% of the petitions filed in 2016 proceeded to a final, contested hearing – as a result of the Court’s decision, Mrs Owens now has to wait until 2020 to reapply for divorce on the basis of what will then have been five years’ separation.
There is, fortunately, a glint of a silver lining. Lord Wilson noted in his judgment that ‘Parliament may wish to consider whether to replace a law which denies to Mrs Owens any present entitlement to a divorce in the above circumstances’, which is something that it will now be doing. Baroness Butler-Sloss introduced the Divorce (etc.) Law Reform Bill (a Private Member’s Bill) to the House of Lords in July, urging a review of the law on divorce and civil partnership dissolution. The Bill is a result of the research of Professor Liz Trinder from the University of Exeter Law School, published by the Nuffield Foundation, which argues that the current law creates needless conflict between spouses that can negatively impact on children. The Bill will now proceed to the second reading in the House of Lords and is supported by a considerable number of family practitioners. It remains to be seen if the proposals come to fruition.
Whether a claimant has to name a defendant, even when they cannot do so, has become of great importance. Cases include wrongdoers who commit fraud and other wrongs whilst concealing their identities using the internet, injunction cases in which wrongdoers cannot be identified, and hit and run drivers. Any civilised society has to allow the possibility of court claims against persons who cannot be named. English Law now allows this through the first rule in its Civil Procedure Rules, the “overriding objective”.
On 28th November 2018 the Supreme Court is to hear the appeal by the insurers from Cameron v Hussain [2018] 1 W.L.R. 657, a hit and run case, which will be the first case on unnamed defendants to reach the highest court.In 2015 there were 17,000 cases in Great Britain involving hit and run drivers with serious injuries in 9% and some deaths. The system of compulsory motor insurance throughout Europe requires an insurer of a vehicle to pay victims. Provided the victim gets the number plate the insurers can be identified from a register. If the insurers do not pay the Sixth Motor Insurance Directive requires Member States to provide a direct right of action against them. This applies regardless of who was driving the vehicle and regardless of what lies may have been told to get the insurance. It includes a thief. There is a safety net for cases where there was no insurance or the victim is unable to identify the insurers. In the UK this is provided by the Motor Insurance Bureau.
The victim’s car was in a hit and run collision. The insurance policy was with a fictitious insured. Drivers who are not insured have more motive not to stop. She had the number plate of the perpetrator’s vehicle and sued the registered keeper. The police had served a notice on him to provide details of who was driving and he was convicted of failing to give information about the driver’s identity. But the insurers applied for summary judgment because they could prove he was not the driver. The victim riposted by asking for permission to sue the unnamed driver, intending to present the judgment to insurers as one they had to satisfy under section 151 of The Road Traffic Act 1988. The District Judge and then the County Court Judge on appeal decided she should not be permitted to do so because insurers could not identify the hit and run driver and claim an indemnity against him. The Court of Appeal by a majority decided to exercise the discretion allowing her to do so.
Article 18 of the Directive, not mentioned in the Court of Appeal judgments, requires Member States to provide a direct right of action against the insurers. It appears only to have been implemented in the UK where the actual driver is covered by the insurance policy. Article 18 is a legislative choice that the insurers are to compensate victims. There is only one exception: when the victim has entered the vehicle as a passenger knowing it was stolen. This is insurance for the benefit of everyone because anyone can be a victim. Insurers can check on who they are being asked to insure and can require adequate premiums across their book of business, to cover their potential liabilities in all eventualities. The victim has no choice.
Steven Gee QC and Christopher Kientzler have written a detailed article on the case which is being published in (2018) 37 Civil Justice Quarterly issue 4 p.413.
Nestlé may have been successful in trade marking its slogan…but it appears the four-fingered chocolate bar is not distinctive enough to warrant protection of its shape.
The Court of Justice of the EU (“CJEU”), in a Judgment dated 25th July, upheld the General Court’s previous decision in 2016, wherein it annulled the earlier decision of the European Union Intellectual Property Office (“IPO”) which had erred in law when it found that the chocolate bar had acquired “distinctive character”. The CJEU held that a trade mark can only be protected as an EU trade mark if it can be demonstrated that it has acquired “distinctive character” across all EU member states. This high threshold may have implications on other EU trade marks that may be unable to provide evidence of “distinctive character” across all member states.
The matter will now return to the IPO, 16 years later, for a determination on whether to uphold its initial decision that the trade mark is valid.
It took years for Nestlé to register the slogan “Have a Break” as a trade mark, finally succeeding in 2006…is this a re-run?
There are no caps on the price of chocolate it appears as both Nestlé and Mondelēz have been ordered to pay their own legal bills.
On 6 July 2018 the High Court held in United States v Dempsey [2018] EWHC 1724 (Admin) that making a false statement to an agent of the US Federal Bureau of Investigation (“FBI”) in the context of suspected international terrorism was an extradition offence. The decision is important in that it clarifies the scope of the English common law offence of perverting the course of public justice.
Dempsey, a US citizen (“the Respondent”), was interviewed by the FBI at Rome airport in 2013, following time spent in Syria. The Respondent provided untruthful answers regarding the purpose of his travel to Syria. Following a second interview with an FBI agent at Rome airport in January 2014, the Respondent admitted that he had lied in the previous interview and that he had in fact fought against the Syrian government. As a result, he was indicted by a Grand Jury in the state of California, and a warrant for his arrest was subsequently issued. The US government requested the Respondent’s extradition from the UK, where he had arrived in September 2014. A District Judge came to the decision that the Respondent did not commit a serious enough offence to warrant being extradited to the US for further prosecution.
However, the High Court came to the opposite conclusion to that of the District Judge. The mere fact of lying to a police officer or other investigator may not of itself disclose the offence of perverting the course of justice. English law required that the action perverted, or tended to pervert, or was intended to pervert the course of public justice. The court found that the Respondent’s lies had the tendency “to put the FBI on to the wrong track”, and the FBI’s investigation was liable to be diverted as a result. The court noted that the offence with which the Respondent had been indicted in the US was not precisely the same as the common law offence. However, the court held that the requirements of the English common law offence included the elements of the US offence, and therefore the Respondent was being pursued for an extradition offence.
Summary
The First-tier Tribunal (Tax Chamber)’s recent decision in Gerrard Gordon; Gary Connell; Nicola Martino; Ian Hills v The Commissioners for Her Majesty’s Revenue & Customs [2018] UKFTT 307 (TC) held that a transfer from a pension scheme to a pension scheme which was held out to be a Qualified Recognised Overseas Pension Scheme (“QROPS”) could give rise to unauthorised payment charges and surcharges under s208 and s209 Finance Act 2004 where it was subsequently found that the scheme did not meet the conditions. The decision also considered the requirements for an officer to make a discovery under s29 Tax Management Act 1970 and when a discovery would become “stale”.
The facts
All four appellants had left the UK. They all transferred their registered UK pensions to an overseas scheme in Latvia in the tax year 2009/10 and received the value of their pension scheme into their bank accounts less fees shortly afterwards. The scheme was excluded by HMRC on 24 August 2010, after the appellants had transferred their pension schemes.
No unauthorised payment charges or surcharges were declared by the appellants on their tax returns for 2009/10. HMRC corresponded with one taxpayer following receipt of the returns; he had a clear conclusion to his case by January 2012 but HMRC did not issue a discovery assessment. The other taxpayers were not contacted by HMRC until 2013 and discovery assessments were issued around the end of the 2014 tax year.
The decision
The Tribunal found that the appellants had not proved that the scheme was a QROPS and therefore the pension transfers were unauthorised transfers. The Tribunal dismissed their arguments that the FA2004 regime, which they regarded as a taxation regime, breached the fundamental freedoms of the TFEU because UK pension schemes were treated in the same manner. The Tribunal also dismissed the submissions that the law breached Article 1 Protocol 1 of the Human Rights Act.
However, this was all moot. The Tribunal decided that it was more likely than not that a discovery had been made by an officer of HMRC by mid-2011 following the provision of information by the transferring pension schemes in January 2011. The Tribunal held that three years, or two if necessary in one case, was too long for a discovery to retain its “essential newness”. HMRC failed to persuade the tribunal that a discovery was not made until later. The assessments raised in 2014 were therefore invalid as the discoveries had become “stale” and the appeals allowed.
Practical implications
The decision emphasises that a “discovery” does not need to be a new piece of information. It is sufficient that it newly appears to an HMRC officer that there has been an under-assessment to tax; new information, a change of view, a change of opinion, or even a correction of an oversight all count. However, HMRC then have to act quickly; taxpayers facing discovery assessments should seek to determine whether a discovery has been made at all and, if it has, whether HMRC have delayed on acting long enough that they are no longer entitled to raise an assessment.
Originating as an extension of French copyright law in the 1920s, an artist’s resale rights, or droit de suite, is now a common feature of an artist’s moral right across Europe. Such right affords artists royalty payments upon subsequent sales of original works of art. In stark contrast, however, the US codified what is known as the First Sale Doctrine, whereby the copyright holder’s right to control reproductions and displays of an artwork does not extend to the original work itself, thus limiting absolute ownership and pre-empting the artist from having an interest in the resale of such work. This doctrine was codified in the federal Copyright Act 1976 (FCA).
Only one year later, in 1977, California attempted to challenge the First Sale Doctrine by enacting the California Resale Royalties Act (CRRA) which granted artists an unwaivable right to 5% of the proceeds of any resale of their artwork in specified circumstances, such right being akin to that afforded to artists across Europe.
In 2011, several artists and their successors sought recovery of these royalties from Sotheby’s, Christie’s and eBay. After a seven-year legal battle, with the Ninth Circuit Court of Appeals (“Ninth Circuit”) having already limited the resale right to sales only within California in 2015, the case came to the Ninth Circuit once more. In its recent ruling, the Ninth Circuit has limited such rights even further by holding that the FCA pre-empts them in their entirety. However, the predecessor to the FCA (the Copyright Act 1909) did not pre-empt such rights. The court found that the artists did have a right, but it was limited to a one-year period: from 1 January 1977 when the CRRA came into force until 1 January 1978 when the FCA became effective.
This decision highlights the distinctions between the US and the European attitudes towards royalties, despite the US becoming a signatory to the Berne Convention, which recognises an artist’s right to an interest in subsequent sales of artworks, back in 1989.
It is thought that the royalty right provided by the CRRA has been neglected by many of California’s galleries and auction houses. However, this decision will affect those artists who have been actively collecting their royalties, and throws into question any past or future attempts by either the federal government or other states to enact legislation granting royalty rights across the US.
Since 27 October 2017 – when an investigation was opened – the Competition and Markets Authority (CMA) has been monitoring online hotel booking sites following concerns that such sites may breach consumer legislation, notably the Consumer Protection from Unfair Trading Regulations 2008, and Part 2 of the Consumer Rights Act 2015. On 28 June 2018 the CMA announced that it is launching enforcement action against a number of websites.
Among the potential breaches identified by the CMA is the extent to which search results may be influenced by the amount of commission that a hotel pays to the respective website, which can have a detrimental effect on consumer choice. In addition, the CMA has identified pressure selling as another area of concern. The CMA describes pressure selling as “[creating] a false impression of room availability” or “[rushing] customers into making a booking decision”. The CMA also sets out to scrutinise the discount claims which many sites make, specifically whether the discount claims offer a fair comparison based on genuine and comparable room pricing. Finally, the CMA has also identified the issue of potential hidden costs, which means that the prices initially shown to customers may be lower than the grand total presented once the customer has reserved a holiday.
The CMA has additionally consulted the Advertising Standards Authority (ASA) to determine whether sites may be misleading customers by using phrases such as “best price guaranteed” or “lowest price”. The CMA plans to address the above concerns by “securing legally binding commitments” from the particular websites found to have committed breaches or, if necessary, take them to court.
