By Jivaan Bennett
This appeal concerned financing arrangements compliant with Sharia law (Ijara arrangement). Under an Ijara arrangement, a financial institution buys an asset which its customer wishes to own and leases it back to him. The rent is calculated so that the financial institution will receive a return on its investment. The customer will also have an option to purchase the asset. On 31 January 2008, the Ministry of Defence sold the Chelsea Barracks to Project Blue Limited (“PBL”) for a sum of £959m (“Transaction 1”). However, pursuant to an Ijara arrangement, PBL completed a sale to Masraf al Rayan (“MAR”), a Qatari bank on the same day for a sum of £1.25b (“Transaction 2”). MAR simultaneously granted a 999 year lease to PBL along with various put and call options.
PBL sought to rely on ss. 45(3) and 71A of Finance Act 2003 which, it argued, granted a “double exemption” from SDLT on Transaction 1 and Transaction 2. Section 45 operates such that the disposal from MoD to PBL is disregarded because it occurred at the same time as, and in connection with the completion of the notional secondary contract. Parallel to this, PBL argued that it was entitled to s. 71A exemption from SDLT. Section 71A serves to relieve refinancing/alternative financing arrangements such that, where property belongs to the customer of a financial institution, neither a sale to the financial institution nor a subsequent lease-back of the property attracts SDLT. HMRC was willing to accept PBL’s argument but countered that, if accurate, it could rightly invoke the anti-avoidance provision, s. 75A so as to charge SDLT on the sum paid by MAR, £1.25b.
Unravelling the issues, the Court found that while Transaction 1 fell to be disregarded (s. 45), s. 71A was not intended to create an exemption for the acquisition by MAR. To enable this would create a huge gap through which arrangements (such as the Ijara arrangement) would attract no SDLT at all. Overall, the transaction was to be viewed as an acquisition from MoD by MAR (at a sum of £1.25b). Accordingly, the appeal was to be dismissed as the party responsible for the SDLT was MAR (and not PBL). On the basis that the chargeable consideration was £1.25b, reliance on s. 75A proved futile as the condition in s. 75A(1)(c) would not be satisfied.
This article appears in the JHA June 2016 Tax Newsletter, which also features:
Originally printed in Taxation on 15 June 2016
Part 10 of the Finance Bill 2016 contains a further raft of measures introduced as part of the government’s ‘war’ on tax avoidance. These days there is almost no point in questioning whether such measures are required or will make any real difference to the tax that is lost each year through avoidance. It will therefore be essential for advisers to be clear on the scope of these rules even if, as is likely, they are of limited practical importance to most taxpayers and advisers.
The new proposals cover changes to the general anti-abuse rule (GAAR), including a penalty, new controls intended to combat ‘serial tax avoiders’, sanctions on unco-operative large businesses and a range of additional measures directed at the offshore world.
On 8 June 2016, the EU Commission’s proposal for an EU wide Anti-Tax Avoidance Directive was approved by the EU Parliament, with 486 votes for, 88 against and 103 abstaining.
Although the directive was welcomed, MEPs have recommend stricter rules in a number of areas. They suggested, inter alia, more stringent limits on tax deductibility of interest and a stricter switch-over clause; adoption of a common definition of patent box, tax havens, and permanent establishment; drawing up an exhaustive black list of tax havens and countries (including those in the EU) and a list of sanctions for non-cooperative jurisdiction and financial institutions operating within those jurisdictions.
The CCCTB has also been put back on the table together with a pitch for creating a harmonised-common EU Taxpayer Identification Number (TIN) to be used as a basis for automatic exchange of information between EU tax authorities.
The text adopted can be found here.
It is now up to the Council either to accept or ignore the Parliament’s amendments, adopt the proposed Directive as it is or reject it.
The Senior Costs Judge, Master Gordon-Saker, has applied the new proportionality test introduced by the Jackson reforms in determining the costs to be awarded in a breach of privacy case. In doing so, he reduced the amount due to the claimant to approximately half of what he had previously deemed as reasonable on a line by line assessment.
One of the main issues in the case was whether the new test applies to additional liabilities as well as to base costs. The master held that it did but added that, contrary to the position under the old rules, the court is not required to consider these items separately.
He stated that it is clear that the new test was intended to bring about a real change in the assessment of costs, but nevertheless admitted that there is presently little guidance as to how it should be applied.
Originally printed in Business Tax Voice in May 2016
Even by today’s standards when anti-avoidance legislation seems to be more and more radical, the Transactions in Securities rules (TIS) were widely seen as condemning tax avoidance transactions to history with some early judicial comment describing them as making tax avoidance no longer possible. As is now clear, this was true only so far as the tax avoidance was within their scope and over the intervening years the Revenue found that the scope of these provisions was very limited indeed. So much so that in the cases of Kleinwort Benson, Sema Group Pension fund and Laird Group, arrangements that the Revenue could reasonably believe were fairly within the cross hairs of the TIS rules escaped. Thus it is clear that where they did apply their impact was severe, so much so that even fifty years on no other provision operates quite like them, but they did not apply very often.
Ray McCann takes a look at the history of the TIS rules and considers the impact of the Tax Law rewrite programme and the 2016 changes.
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Originally published in Tax Journal on 27 May 2016
Swiss leaks, Luxembourg leaks, the Panama papers, BEPS and the EU Commission’s Anti-Tax Avoidance Package – where will all this get us? Despite the public furore over the tax affairs of multinationals, there is still no clear dividing line between acceptable and unacceptable tax planning arrangements for groups. This is because the OECD, the EU Commission, the CJEU, HMRC and other tax authorities employ a number of different doctrines that try to identify what tax avoidance means. All that is certain is that the boundaries are constantly shifting and may be defined differently by different players.
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Originally printed in Tax Journal on 11 May 2016
The Court of Appeal has handed down its judgment in the Prudential case, in what is hoped to be one of the final steps of this long lasting action between taxpayers invested in cross border portfolio holdings and HMRC. HMRC’s appeal was allowed on three esoteric issues of computation relating to ACT but was otherwise dismissed. The judgment sends out a broader message: it is not permissible, as HMRC sought to do in relation to ACT, to disregard the legislative system and seek to superimpose a newly devised system to replace it in circumstances where EU law was engaged. The issue of Prudential’s entitlement to compound interest remains subject to further litigation. Simon Whitehead and Philippe Freund (Joseph Hage Aaronson), who acted for the taxpayers, summarise the outcome of this judgment and explain why it has taken so long.
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In April 2015 the European Commission opened a formal antitrust investigation of Google in relation to its Android mobile operating systems and Google’s agreements associated with the use of Android and Google’s proprietary applications. Following from that investigation, the European Commission has (on 20 April 2016) issued a Statement of Objections. In effect, the European Commission alleges that Google, which has 90% of the market share for general internet searches, is abusing its dominant position. In its Statement of Objections, the Commission outlined three specific concerns:
It will be up to Google to reply to the Commission’s Statement of Position before the matter is concluded at the level of the European Commission.
This article appears in the JHA May 2016 Tax Newsletter, which also features:
The Court of Justice last Thursday handed down its judgments in C-607/14 Bookit and C-130/15 National Exhibition Centre, clarifying the application of the VAT payment and transfer exemption under Article 135(1)(d) of Council Directive 2006/112/EC. The decision has a bearing on the VAT treatment of card handling services.
In the first instance, the Court observed that the national court ought to consider whether the provision of such services was part of a single supply of tickets or constituted a separate service.
The Court went on to decide that an exchange of information between a trader and its merchant acquirer bank could not fall within the exemption. Collecting and sending cardholder details, receiving authorisation codes and sending authorisation codes and transaction data back to the cardholder bank via a merchant acquirer could not constitute a ‘specific and essential function’. Whether an authorisation code was obtained directly or through a merchant acquirer made no difference to the analysis. Further, Bookit and the NEC did not assume liability as regards changes in the financial and legal situation.
The decision at least partially undermines Bookit CA [2006] EWCA Civ 550 in which the Court of Appeal considered Bookit’s previous regime, which involved specifically transmitting card information and security information to its own bank without a merchant acquirer, as VAT exempt.
This article appears in the JHA May 2016 Tax Newsletter, which also features:
The Council of the European Union has been busy this week in the area of both direct and indirect taxation at EU and international level.
First, in the area of direct taxation, the Council adopted rules on the exchange of tax-related information on multinational enterprises (MNEs). The directive, which is part of the EU Commission’s Anti-Tax Avoidance Package, builds on OECD’s BEPS Action 13 and is aimed at groups of companies with a total consolidated group revenue of at least €750 million. Starting with the 2016 fiscal year, MNEs will be required to report information on their profits, taxes paid, tangible assets, number of employees, etc. Non-EU resident parent companies will have to file a report through their EU subsidiaries. The information will be exchanged automatically amongst tax authorities.
The deadlines set by the directive include:
Member States are to implement penalties in cases of breaches.
In the area of indirect taxation, the Council has adopted a directive, amending the VAT Directive, whereby the minimum standard VAT rate of 15% will be maintained until 31 December 2017. This, according to the Council, will help prevent excessive divergence in VAT rates applied across different Member States, distortions of competition that could arise as a result, and ensure legal certainty. Discussions on the features of a definitive EU VAT regime are ongoing. At global level, the Council agreed on the establishment of an EU list of third country non-cooperative jurisdictions, more commonly known as tax havens. The Code of Conduct Group will commence work on such a list by September 2016.
This article appears in the JHA May 2016 Tax Newsletter, which also features:
