Court of Appeal confirms stricter approach to breach of tax tribunal orders
The Court of Appeal has held that it is appropriate for tax tribunals to apply the stricter approach to compliance with rules and directions made under the CPR as set out in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 and Denton v TH White Ltd and other appeals [2014] EWCA Civ 906 when dealing with non-compliance.
The case before the Court concerned whether the First-tier Tribunal (FTT) was right to debar HMRC from further participation in the substantive proceedings before the FTT for their serious and prolonged breach of an order requiring them to give proper particulars of their pleaded case against the appellant, BPP Holdings. The appeal turned on the proper approach of tax tribunals in cases where there has been breach of an order.
The Court of Appeal held that there was nothing in the wording of the overriding objective of the tax tribunal rules that was inconsistent with the general legal policy described in Mitchell and Denton. Further, it could see no justification for a more relaxed approach to compliance with rules and directions in the tribunals: the tribunal’s orders, rules and practice directions are to be complied with in like manner to a court’s.
In allowing the appeal, the Court restored the order of the FTT debarring HMRC from further involvement in the proceedings.
The decision resolves the previous conflict between the Upper Tribunal decisions in Leeds City Council v HMRC [2014] UKUT 0350 (TCC) and HMRC v McCarthy & Stone (Developments) Ltd and another [2014] UKUT B1 (TCC).
The Chancellor’s Budget delivered to Parliament on 16 March 2016 contained, as usual, a significant number of tax reforms relevant to EU claims and cross border transactions including:
Hybrid Mismatch Arrangements
In response to the OECD Report on hybrid mismatches, the Bill seeks to deal with tax mismatches involving permanent establishments. The legislation tackles perceived aggressive tax planning, typically involving multinational groups, where either one party gets a tax deduction for a payment while the other party does not pay tax on the receipt, or where there is more than one deduction for the same expense. The legislation will have effect from 1 January 2017.
BEPS
New rules will be introduced to limit the tax relief that companies can claim for their interest expenses. In October 2015, the OECD published its recommendations for best practice in this area as one of the outputs from its BEPS project. The government has consulted on the merits and general framework of the recommendations and has decided to introduce rules to limit interest deductions by companies. Existing commercial arrangements within the oil and gas ring-fence regime will not be adversely affected. The new rules will come into effect from 1 April 2017.
Royalty Payments
Provisions will be included to widen the circumstances in which withholding tax must be deducted from payments of royalties to persons not resident in the UK and to counter the use of contrived arrangements involving double taxation treaties to obtain relief from withholding taxes on royalties. The changes preventing the use of contrived arrangements have effect for payments made on or after 17 March 2016. The changes to widen the circumstances in which withholding tax must be deducted from payments of royalties will be introduced later in the passage of Finance Bill 2016 and will have effect for payments made on or after the date of Royal Assent to the Finance Bill 2016.
Some Other Provisions
The Finance Bill will be published on 24 March 2016.
This article appears in the JHA March 2016 Tax Newsletter, which also features:
By Jivaan Bennett
The High Level Working Party (Taxation), a Council preparatory body, decided in 2014 that a concrete roadmap was necessary to address the issues of unfair tax competition, base erosion and profit shifting in the EU context (“EU BEPS”). Following from the Commission’s launch of its Anti-Tax Avoidance Package on 28 January 2016 (see our February newsletter), the Dutch Presidency has set out its key objectives. In the short term, the two principal legislative developments will be:
In the medium term, the Dutch Presidency will undertake work on transfer pricing, outbound payments (payment flowing out of the EU), disclosure of aggressive tax planning, beneficial ownership of non-transparent entities, dispute settlement in the area of transfer pricing and the conditions and rules for the issuance of tax rulings.
This article appears in the JHA March 2016 Tax Newsletter, which also features:
Breaching Orders in the Tax Tribunal
Tax Tribunals are to apply the strict approach to compliance with rules and directions under the CPR as set out in Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537 and Denton v TH White Ltd and other appeals [2014] EWCA Civ 906.
The Court of Appeal held that the First-tier Tribunal (FTT) was correct to debar HMRC from continuing participation in the FTT proceedings for their serious and prolonged breach of an order requiring them to give proper particulars of their pleased case against the appellant, BPP Holdings. In so finding, the Court of Appeal held that there was nothing in the wording of the overriding objective of the tax tribunal rules that was inconsistent with the general legal policy described in Mitchell and Denton. There was no justification for a more relaxed approach to compliance with rules and directions in the tribunals.
This article appears in the JHA March 2016 Tax Newsletter, which also features:
Income tax avoidance on bankers’ bonuses
Section 425(2) Income Tax (Earnings and Pensions) Act 2003 exempts employment-related “restricted securities” from income tax. Pursuant to ss420(1) and 423(2) ITEPA, “restricted securities” include shares which are subject to forfeiture if certain circumstances arise or do not arise.
UBS AG (“UBS”) and DB Group Services (UK) Ltd (“DB”) awarded redeemable shares to its employees, as opposed to paying bonuses directly, in a special purpose offshore company established solely to facilitate the avoidance of income tax. Conditions were attached to the shares, which were removed after a short time thereby allowing the employees to redeem their shares for cash.
The Supreme Court, construing the legislation purposively, held that, since Part 7 was intended to counteract opportunities for tax avoidance, Parliament could not have intended to encourage the award of shares to employees where this had no purpose other than obtaining an exemption from income tax. The Court therefore concluded that the exemption for “restricted securities” should be construed as limited to provision for a commercial or business purpose. This precluded the UBS and DB bonus schemes from exemption.
This article appears in the JHA March 2016 Tax Newsletter, which also features:
Originally printed in Tax Journal on 26 Feb 2016.
The recent judgment of the Court of Justice in Scotch Whisky Association and Others v Lord Advocate and Advocate General for Scotland (C-333/14) (23 December 2015) provides further guidance on how national courts in the EU should review legislation restricting trade. The CJEU decided that excise duty, rather than a minimum selling price, was the correct mechanism to combat the evils of alcohol abuse. In doing so, the court applied a much more stringent proportionality test when deciding whether measures equivalent to quantitative restrictions could nevertheless be justified under TFEU article 36. However, in applying this strict proportionality test and considering alternative measures, the court showed no regard for the member state’s devolution arrangements and the actual powers of the authority by which the contested measure was adopted. The case highlights the complexities of policy making where both the legislative competence of a devolved administration and compatibility with EU law need to be considered.
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Originally printed in Highlights & Insights on European Taxation, 2013 Issue 5.
A Oy (C-123/11) concerns Finnish tax law and the possibility of using losses sustained in another Member State after a merger which made the losses unusable. Advocate General Kokott’s view was significantly different to that of the CJ in this matter, the CJ confirming and applying its earlier judgment in Marks & Spencer(C-446/03). It restated that tax legislation restricting the freedom of establishment cannot be justified where there was no past or future possibility of using the losses incurred by a subsidiary in its State of residence either by the subsidiary itself or by a third party. The CJ puts the onus squarely on the national courts to undertake a review of the specific facts involved in the case to conclude if the no possibilities exception is satisfied.
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Originally printed in Tax Journal on 5 Feb 2016.
Simon Whitehead, founding partner of JHA, tells Tax Journal about his in-tray, big developments to look out for in 2016, his tax hero, Joseph Hage Aaronson LLP, Pham v Sec of State for the Home Department [2015] UKSC 19, and what he gets up to in his garage.
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On 11 January 2016, the European Commission published its decision that the Belgian “Excess Profit” tax regime was contrary to the EU State Aid rules. Under the standard corporation tax regime in Belgium, companies are taxed on the basis of profits actually earned throughout the tax period. However, the “Excess Profit” tax regime, in effect since 2005, allows certain multinational enterprises to reduce their tax liability on the basis of binding tax rulings. In essence, the regime makes allowance for profits which the companies would not have earned but for the fact that they are members of a multinational group. It is estimated that some 35 companies benefited from the Excess Profit tax regime enabling them to reduce their corporate tax liability by up to 90% in some cases.
The Commission found that the Belgian excess profit regime offered a selective advantage to multinational companies as opposed to other companies which were not members of a multinational group. An interesting point to note is the development of the “arm’s length principle” as a principle of EU State Aid law. Under the arm’s length principle, “residual profits” (referred to in the Belgian legislation as “excess profits”) are to be shared amongst group companies in a manner which reflects economic reality. However, the Commission reasons that, by discounting unilaterally the excess profits from the Belgian tax base, Belgium contravenes EU State Aid rules by disregarding the arm length’s principle.
The Commission estimates that a total of EUR 700m is recoverable. The Belgian Minister of Finance, on 12 January 2016, indicated that Belgium intends to appeal the decision.
This article appears in the JHA February 2016 Tax Newsletter, which also features:
On 23 December 2015, the Supreme Court granted HMRC permission to appeal against the Court of Appeal’s decision in Littlewoods v HMRC (compound interest on repaid VAT). We reported on the Court of Appeal’s judgment in our May 2015 newsletter. We do not yet know the dates of the Supreme Court hearing, but would expect the hearing to take place in Q1 of 2017 and final judgment to be handed down by around mid 2017. We will report on any developments.
This article appears in the JHA February 2016 Tax Newsletter, which also features:
