QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| THE QUEEN (on the application of Geoffrey Richard HAWORTH)
|- and -
|THE COMMISSIONERS FOR HM REVENUE AND CUSTOMS
TIMOTHY BRENNAN QC and CHRISTOPHER STONE (instructed by HMRC) for the Defendant
Hearing dates: 24-26 April 2018
Crown Copyright ©
Sir Ross Cranston:
Devising the arrangements
"Counsel has suggested that trustees could be appointed resident in a jurisdiction which has a suitable double taxation treaty with the UK. This would be followed by a disposal. UK resident trustees would be appointed before the end of the tax year in which the disposal takes place. The gains arising in the hands of the intermediate trustees could escape taxation."
"As the proposed measures anticipate the repatriation of the settlement after realisation of the gain in Mauritius, I envisage that the present trustees will appoint the shares to be realised on flotation to new trustees, either in Jersey or directly to trustees resident in Mauritius. UK trustees will then be appointed after the disposal in place of the trustees resident in Mauritius, so that the whole of the appointed fund will have been repatriated."
"they will be asked to undertake various steps…
a) extension of class of beneficiaries
b) the appointment of part of the funds on discretionary trusts
c) the appointment of capital to beneficiaries
d) the disposal of some trust shareholdings
e) the onward appointment of UK trustees, probably at the end of October 2000."
"The existing Jersey trustees will be asked to retire in favour of trustees resident in Mauritius. This transfer is to be carried out as soon as possible…Following the appointment of trustees in Mauritius, a proportion of the settlement funds will be appointed on discretionary trusts. The purpose of this is to ensure that the settlement is liable to tax in Mauritius, …After flotation UK resident trustees will be appointed and the cash proceeds, subject to reassurances for the trustees in the event of tax planning not being successful, will be distributed to [Mr Haworth]."
"In broad terms the Trustees in Mauritius will need to retire in favour of Trustees who are resident in the United Kingdom between now and the end of the year at a time that Chris Maslen will identify for strategic reasons."
HMRC investigations into the claimant's affairs
Smallwood and its aftermath in HMRC
WFGG and follower notices
"whether the fact pattern set out in the advice from Solicitor's Office…occurs in other cases…WFGG are asked to 'approve in principle' the issue of follower notices for all cases that meet this factual matrix. Details of all such cases will then be notified to WFGG on the user spreadsheet with a covering email instead of a full submission."
Where a case did not meet all 7 criteria there would be a separate submission.
Claimant's review document/spreadsheet
Follower notice in claimant's case
THE LEGAL FRAMEWORK
Consultation and Parliamentary process
Finance Act 2014: follower notices and accelerated payment notices
"Section 204 - Circumstances in which a follower notice may be given
(1) HMRC may give a notice (a "follower notice") to a person ("P") if Conditions A to D are met…
(4) Condition C is that HMRC is of the opinion that there is a judicial ruling which is relevant to the chosen arrangements…"
"Section 205 - "Judicial ruling" and circumstances in which a ruling is "relevant"…
(3) A judicial ruling is "relevant" to the chosen arrangements if—
(a) it relates to tax arrangements,
(b) the principles laid down, or reasoning given, in the ruling would, if applied to the chosen arrangements, deny the asserted advantage or a part of that advantage, and
(c) it is a final ruling."
"Section 206 – Content of a follower notice
A follower notice must—
(a) identify the judicial ruling in respect of which Condition C in section 204 is met,
(b) explain why HMRC considers that the ruling meets the requirements of section 205(3), and
(c) explain the effects of sections 207 to 210."
"(4) Condition C is that one or more of the following requirements are met—
(a) HMRC has given (or, at the same time as giving the accelerated payment notice, gives) P a follower notice under Chapter 2—
(i) in relation to the same return or claim or, as the case may be, appeal, and
(ii) by reason of the same tax advantage and the chosen arrangements;
(b) the chosen arrangements are DOTAS arrangements…
"an amount equal to the amount which a designated HMRC officer determines, to the best of that officer's information and belief, as the understated tax…": s 220(3).
"(i) it were assumed that the explanation given in the follower notice in question under section 206(b) is correct, and
(ii) the necessary corrective action were taken under section 208 in respect of what the designated HMRC officer determines, to the best of that officer's information and belief, as the denied advantage."
"Denied advantage" has the meaning given in section 208(3), which is so much of the asserted advantage as is denied by the application of the principles laid down, or reasoning given, in the judicial ruling identified in the follower notice under section 206(a): s.220(5)(a).
Follower notice guidance
"Decisions over the giving of follower notices will be taken by a senior HMRC panel. This panel will consider the principles and reasoning established by final judicial rulings and the context within which those principles arise. The panel will be independent from the teams who investigate cases. It will consider both existing final cases which may be relevant, as well as new cases which will arise from time to time".
The Commissioners for Revenue and Customs Act 2005: HMRC
"(1) Arrangements under section 12 may, in particular, enable the Commissioners, or a number of Commissioners acting in accordance with arrangements by virtue of section 12(2)(b), to delegate a function of the Commissioners…
(b) to a committee established by the Commissioners (which may include persons who are neither Commissioners nor staff of the Commissioners nor officers of Revenue and Customs)".
The Smallwood case
"The place of effective management (POEM) is the place where key management and commercial decisions that are necessary for the conduct of the entity's business are in substance made. The place of effective management will ordinarily be the place where the most senior person or group of persons (for example a board of directors) makes its decisions, the place where the actions to be taken by the entity as a whole are determined; however, no definitive rule can be given and all relevant facts and circumstances must be examined to determine the place of effective management."
" On the primary facts which the Special Commissioners found at paragraphs 136-145, which are set out in the judgment of Patten LJ, I do not think that it is possible to say that they were not entitled to find that the POEM of the trust was in the United Kingdom in the fiscal year in question. The scheme was devised in the United Kingdom by Mr Smallwood on the advice of KPMG Bristol. The steps taken in the scheme were carefully orchestrated throughout from the United Kingdom, both by KPMG and by Quilter [investment advisers]. And it was integral to the scheme that the trust should be exported to Mauritius for a brief temporary period only and then be returned, within the fiscal year, to the United Kingdom, which occurred. Mr Smallwood remained throughout in the UK. There was a scheme of management of this trust which went above and beyond the day to day management exercised by the trustees for the time being, and the control of it was located in the United Kingdom."
APPPLICATION OF SMALLWOOD: GROUND 1
(1) Principles or reasoning from Smallwood
(2) Decision that Smallwood principles would deny the asserted advantage
EXPLANATION OF RELEVANCE OF SMALLWOOD: GROUND 3
HMRC'S DECISION MAKING PROCESS: GROUND 3A
(1) Improper delegation/decision-maker did not effectively make decision
(2) Decision in the claimant's case
(3) Taking into account relevant considerations and/or predetermination
(4) Designated officer: accelerated payment notice
BREACH OF A1P1: GROUND 5
VALIDITY OF ACCELERATED PAYMENT NOTICE: GROUND 6