Taxation - application by the plaintiff for a summary judgment.
Before : |
Advocate Matthew John Thompson, Master of the Royal Court |
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Between |
Treasurer of the States |
Plaintiff |
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And |
Sean Anthony Creavy |
Defendant |
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Advocate S. A. Meiklejohn for the Plaintiff.
Advocate M. L. Preston for the Defendant.
CONTENTS OF THE JUDGMENT
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Paras |
1. |
Introduction |
1 |
2. |
Background |
2-9 |
3. |
Article 131G of the Income Tax (Jersey) Law 1961 |
10-15 |
4. |
Decision |
16-24 |
judgment
the master:
1. This judgment represents my brief reasons in respect of an application by the plaintiff for summary judgment.
2. There was no dispute between the parties on the applicable test or the relevant factual background which is summarised at paragraphs 5(a) to (e) of the plaintiff's written submissions as follows:-
"(a) Approval of a retirement annuity contract had been granted by the Taxes Office in June 2009.
(b) Approval was withdrawn in July 2014 on the basis that the said contract had not been administered in accordance with its terms, namely that signed accounts were to be produced by a qualified accountant acceptable to the Comptroller of Taxes made up to 31 December each year, and that there had been a failure to submit accounts for the period ended 31 December 2009 and the years ended 31 December 2010, 2011, 2012 and 2013.
(c) The withdrawal of approval was communicated to the Defendant by letter dated 17 July 2014 sent with a notice of assessment to tax for the year of assessment 2014. The said notice stated that tax of £73,029 was payable, based on a tax rate of 50% then in force and an amount assessed of £146,058.
(d) The said letter referred the Defendant to the right of appeal to the Commissioners of Appeal, stating that if he wished to appeal the assessment he must give notice in writing to the Comptroller, stating the grounds of the appeal and the amount to be paid, within 40 days of the date of the Notice of Assessment. It was also stated in the said notice that if no appeal was made, the whole of the total tax charged was payable forthwith.
(e) The Defendant did not lodge an appeal within the 40 day period, and the tax as charged became payable at the end of that period."
3. Following the Comptroller notifying the defendant that there would be no appeal under the Income Tax (Jersey) Law 1961 and therefore a tax liability of £73,029.00 was due, the defendant then wrote to the Comptroller by a letter dated 30th December, 2014, and provided certain information in relation to the value of the assets held under the annuity scheme and explaining that one part of the assets being a loan to the defendant's in-laws, was irrecoverable.
4. The defendant in the final paragraph of this letter stated "I hope you accept this letter as my appeal against your assessment of 50% of the assets and that you can look kindly upon me in respect of the loan which has to be written off as not recoverable".
5. The Comptroller's response on 19th February, 2015, stated that the appeal was out of time but asking for bank statements and brokers' statements.
6. The defendant responded by a letter dated 25th March, 2015. raising the following points:-
(i) The liability was that of the company, Creavy Limited which held the assets under the approved annuity contract;
(ii) He did not have an entitlement to the assets other than a possible distribution of 25% of the fund tax free;
(iii) The only liquid assets were those held in investments with Brewin Dolphin;
(iv) While he accepted that a loan to his parents in law should not have been made, the money lent was irrecoverable;
7. The reply from the Comptroller dated 13th April, 2015 contained this statement:-
"With reference to the level of the assessment again it is the legislation that sets the tax rate where the Plaintiff withdraws the approval of a scheme which (in 2014) was under the provisions of Article 131G of the Income Tax (Jersey) Law 1961. I confirm that Article 131G(5) the rate is 50% on the higher of the two calculations."
8. Subsequent correspondence on behalf of the Comptroller chased for payment of the tax on a number of occasions and repeated that the rate payable was 50%. The defendant did not help himself by not responding to the chasing correspondence or providing information required. He also maintained his challenge to the rate of 50%.
9. Ultimately proceedings were issued in 2017 and following argument the matter was placed on the pending list by the Royal Court. The plaintiff sought leave to appeal this decision to the Court of Appeal which was refused by a judgment of the Bailiff reported at Treasurer of the States v Creavy [2017] JRC 154.
10. The key provision in my judgment is Article 131G of the Income Tax (Jersey) Law 1961, as amended, in force at the time of the tax assessment issued by the Comptroller. Paragraph 1(c) of Article 131G stated that Article 131G applies to an annuity scheme approved under Article 131B or 131C. It was not in dispute that the annuity scheme had been approved under Article 131B.
11. Article 131G (3)(a) and (b) permitted the Comptroller to give written notice of the withdrawal of approval of an annuity scheme as follows:-
"(3) The Comptroller shall give written notice of the withdrawal of approval, the grounds for withdrawal and the date on which the withdrawal takes effect to -
(a) the fund administrator;
(b) any person whose acts warranted the discontinuance of approval of the fund or part of it."
12. What was meant by the fund administrator was defined in Article 131G(11) as being a person being in control of the fund and any connected person. This clearly was Creavy Limited being the entity that was holding the assets under the annuity scheme. However, the defendant clearly fell within the definition of paragraph 3(b) of Article 131G because he was both a director of Creavy Limited and clearly authorised the making of a loan to his in-laws.
13. This matters because any party identified in Article 131G(3) can be held liable to pay tax at a rate of 50% as set out in Article 131G(5).
14. However, Article 131G(6) contains a qualification to paragraph (5) as follows:-
"(6) The Comptroller may abate the liability to tax under paragraph (5) by an amount which is, having regard to the relevant circumstances, just and reasonable."
15. This power is still found in the current version of the Income Tax (Jersey) Law 1961 in Article 131P and so is still a power vested in the Comptroller.
16. The view I reached, by reference to the events described above, was that the Comptroller had not considered whether or not to exercise the power in paragraph (6) of Article 131G to reduce the amount assessed under paragraph (5) either when issuing the assessment or in response to the defendant's letters of 31st December, 2014, and 25th March, 2015. While I understand why the Comptroller issued a notice at the initial rate of 50% because accounts had not been provided as required by the undertakings given pursuant to the approved annuity scheme and so he had no information to abate the 50% rate, once the defendant did respond, albeit belatedly, the Comptroller does not appear to have applied his mind to whether or not the power contained in paragraph (6) of Article 131G should be exercised.
17. In my judgment, the obligation to consider an exercise of the power in Article 131G (6) is arguably an on-going duty even if an assessment has been issued. In this case it does not appear that the power was considered at all when the initial notice was issued. While that may be understandable as noted above because the defendant had not provided accounts, it is not an improbable or fanciful argument to contend that the duty under paragraph (6) is an on-going one where information is provided and it is argued that the rate of tax assessed is not just or reasonable. The rate of 50%, which is an unusual rate in Jersey, is not an absolute rate because the Comptroller was given express power by the States to modify this rate. The States also did not insert any time limit preventing the power from being exercised whether before or after an assessment had been issued under paragraph (5). I consider the insertion of paragraph (6) was to modify the potentially punitive effect a rate of 50% could otherwise have on a pension pot. It allowed the Comptroller to strike a balance between charging tax where those maintaining an annuity contract or other approved scheme had breached the requirements of any approval granted but only doing so in a manner that was just and reasonable. In this case consideration of the exercise of that power has not taken place on the evidence before me.
18. Accordingly, I could not accept the argument that the certificate issued by the Comptroller that tax was due and payable was a basis upon which I could grant summary judgment. That certificate was issued pursuant to Article 44 of the Income Tax (Jersey) Law 1961. Article 44 provides as follows:-
"For the recovery by legal process of income tax, or of any balance of income tax, a certificate under the hand of the Comptroller in the following form or to the same effect, stating that the person named therein is in default as regards payment of income tax, shall be sufficient evidence that the amount of tax mentioned therein has been duly charged and assessed, and is in arrear and unpaid..."
19. In the context of an application for non-payment of arrears of tax following the filing of an assessment by an individual or entity, ordinarily there is no need to go behind the certificate. However, Article 44 does not state that a certificate is conclusive but merely 'sufficient'. In my judgment there is a difference between a certificate being conclusive where the court has to accept it and a certificate being sufficient where the court can accept the certificate without having to go behind the detailed evidence; in the ordinary course the court can proceed by reliance on the certificate alone.
20. This case however is not an ordinary one because of the failure on the part of the Comptroller to consider an exercise of the discretion contained in paragraph (6) of Article 131G. In view of this failure, I am unable to accept the certificate as sufficient evidence that tax is due when consideration has not taken place whether or not to exercise a relevant power vested in the Comptroller.
21. As against the above, the defendant has not helped himself by not responding to the Comptroller's requests for information, albeit I was informed that he had recently provided some information. Furthermore, the defendant's advocate accepted that at times the defendant had buried his head in the sand. Had the information the Comptroller had requested been provided at an earlier stage, the present dispute may not have arisen.
22. The information required by the Comptroller is also relevant to whether or not there is a dispute because, if it is provided, it allows the Comptroller to decide whether or not to continue with the present proceedings or whether to exercise even at this stage the discretion under paragraph (6) of Article 131G to reduce the amount of tax owed.
23. Accordingly, while I gave the defendant leave to defend I did so on the condition that the defendant filed an affidavit providing information to the Comptroller about assets which had been held under the annuity scheme approved by the Comptroller. I further gave the plaintiff additional time to consider this affidavit either to come back to court to argue that the order had not been complied with or, if the assessment issued in 2014 was reduced to discontinue the present proceedings, leaving over the question of costs. I took this approach because, if the Comptroller was at this stage provided with sufficient information and was minded to vary the assessment, having applied paragraph (6) of Article 131G then in consequence the present proceedings would fall away, because the current assessment would no longer stand. If the defendant wished to challenge any fresh assessment, the right way to do so would be to exercise a right of appeal within the 40 day time limit to a Commission of Appeal.
24. Finally, I also took the above approach because, if the Comptroller was to exercise the discretion in paragraph (6) of Article 131G, then the parties would not need to incur significant costs on the interesting Human Rights arguments referred to in the judgment of the Bailiff where leave to appeal placing the matter on the pending list was refused. These arguments were also not matters that it was appropriate to determine on a summary judgment application (and I was not addressed on them) although the primary basis for dismissing the application are the matters set out above concerning Article 131G(6).
Authorities
Income Tax (Jersey) Law 1961.