ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Claim No. CO/11073/08,  EWHC 1846 (Admin)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE SULLIVAN
LORD JUSTICE TOMLINSON
| IN THE MATTER OF an application for judicial review
R(MR IAN ISAAC SHINER & ANR)
|- and -
|HER MAJESTY'S REVENUE & CUSTOMS
MR RABINDER SINGH QC, MR KIERON BEAL and MR JAMES RIVETT (instructed by HMRC Solicitor's Office) for the Respondents
Hearing dates : 2nd, 3rd and 4th November 2010
Crown Copyright ©
Lord Justice Mummery :
Not an appeal
Overview of proceedings
"1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.
2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited. "
Claimants' case: main steps
(1) The payment of the sum of £10 into the Manx trust was a transfer of capital.
(2) The transfer was from a Member State to a third country, because the Isle of Man is neither part of the UK nor the EU territory. EU law does not apply, save where Protocol 3 says so. Article 56 has not been so applied to the Isle of Man.
(3) The effect of s. 58 is retrospectively to impose a charge to income tax on a UK resident who is "entitled to" a share of the income of an overseas firm in a case where, without that section, any part of the income would have been exempt from UK taxation as a result of a tax treaty.
(4) Restrictions on the free movement of capital between Member States and between Member States and third countries are prohibited.
(5) An investment in an overseas firm giving rise to an entitlement to a share in the income of the firm is a movement of capital.
(6) Any tax charge on income received by a UK resident from an overseas undertaking is potentially a restriction on the free movement of capital, where the consequence of the tax charge is to subject the UK resident making a cross border investment to a higher burden of taxation than comparable situations by, for example, denying exemption or credit for tax paid overseas.
(7) Section 58 cannot be justified, as it is disproportionate, unfair and retrospectively removes rights, which previously existed under national taxation and tax treaties, without any transitional periods frustrating legitimate expectations of taxpayers, who have relied on the previous legislation.
(1) Was there a relevant "movement of capital" or a payment within the meaning of Article 56?
(2) If so, was the transfer or payment made between a Member State and a third country? That would involve deciding whether, within the meaning of Article 56, the Isle of Man is a "third country" to which there has been a movement of capital from the UK.
(3) If so, how wide can the inquiry then range beyond the particular facts of this case into the realm of hypothetical situations to which s. 58 and Article 56 might relate?
(4) Does s.58 restrict transfers of capital to a foreign partnership, but not those to a UK partnership? If so, is that precluded by Article 56 (subject to the defence of justification)?
(5) If s.58 is precluded by Article 56, can it be justified in whole or in part, so that the retrospective aspect of s.58 is valid, despite the breach of the Article?
(6) Is there a doubt whether s.58 is precluded by Article 56 or whether it can be justified?
(7) If so, should there be a reference of questions of interpretation of Article 56 to the Court of Justice?
(8) Are the claimants' proceedings an abuse of rights under EU law?
"1. Is a national legislative measure which:
(a) applies to a person who is not a member of a partnership but is entitled to a share of the income of a partnership (an "Income Participant"),
(b) permits an Income Participant to obtain the benefit of relief from taxation, both under such bilateral double taxation arrangements as apply and under domestic provisions relating to the relief from double taxation, where the partnership of which he is an Income Participant
(i) resides in the United Kingdom; and
(ii) does not carry on a trade or business, the control or management of which is outside the United Kingdom;
(c) precludes an Income Participant of any other partnership (being all partnerships resident outside the United Kingdom and all partnerships which, although resident in the United Kingdom, carry on a trade or business the control of which is outside the United Kingdom) from benefitting from any such relief
compatible with Article 63 TFEU?
2. If such a measure is not compatible with Article 63, can the breach of Article 63 be justified so far as the measure is expressed to have prospective effect but not so far as it is expressed to have retrospective effect? "
I. Scope of application issues; transfer of "capital"; transfer from one Member State to a third country
II. No restriction on free movement of capital
V.Retrospectivity and the legal certainty principle
VI.Abuse of rights doctrine
Lord Justice Sullivan:
Lord Justice Tomlinson: