A family-owned company sold its telephone betting business to another company in Gibraltar. HMRC assessed members of the family on profits of the Gibraltar company. Under the version of the transfer-of-assets-abroad legislation governing those tax years, the question was who had transferred the business. Shareholding and the ability to benefit from profits did not by themselves answer it.
The transfer and the assessments
Anne and Stephen Fisher and their children, Peter and Dianne, were the directors and shareholders of Stan James (Abingdon) Limited (SJA), a UK-resident betting company. The business was an early user of telebetting. In 1999 UK betting duty was 6.75 per cent of the stake, whereas Gibraltar duty was 1 per cent. A Gibraltar bookmaker could take a telephone bet from a UK customer without UK duty, although overseas bookmakers were restricted from advertising in the UK and from sharing resources with a UK entity.
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SJA established a Gibraltar branch in 1998. In 1999 the family incorporated Stan James Gibraltar Limited (SJG). By an agreement effective from 29 February 2000, SJA sold its telebetting operation and its other activities apart from shops to SJG at an independent valuation. Stephen signed for SJA and Peter for SJG. At that time Stephen and Anne each held 26 per cent of SJG and Peter and Dianne 24 per cent, with equal rights. Their holdings in SJA were different: 38 per cent each for Anne and Stephen and 12 per cent each for Peter and Dianne.
HMRC assessed Stephen and Anne for 2000/01 to 2007/08, and Peter for some of those years, treating SJG’s profits as their income in proportion to their SJG shareholdings. The charge did not depend on money actually received from SJG. Dianne was not UK-resident and was not assessed. The First-tier Tribunal treated each Fisher as a transferor of the whole business. The Upper Tribunal held that SJA, not its shareholders or directors, made the transfer, so the code did not apply. The Court of Appeal majority held that Stephen and Peter were caught but Anne was not, because she had taken no active part; Phillips LJ would have held that none of them was caught.
Who section 739 charges
Section 739(1) describes the prevention of avoidance by individuals ordinarily resident in the United Kingdom through transfers of assets by virtue of which income becomes payable to a person resident or domiciled outside the United Kingdom. Section 739(2), the provision used by HMRC, deems the overseas person’s income to be that of “such an individual” who has power to enjoy it. Power to enjoy is broadly defined. Section 740 charges a non-transferor only on a benefit received and only if section 739 does not apply. Section 742(9) extends a reference to an individual to that individual’s spouse. Section 741 contains a motive defence focused on the purpose of the transfer, and section 744 prevents the same income being charged more than once.
The House of Lords in Vestey had confined an earlier version of the charge to the transferor. The Supreme Court read section 739 in the same way. The words “such an individual” referred back to the person avoiding tax by a transfer. This mattered because section 739 could attribute income that the individual never received. Section 740 dealt separately with someone who had not made the transfer but did receive a benefit.
Shareholders are not the company’s transferors
SJA was unquestionably the legal transferor. HMRC argued that the Fishers procured the transfer and were quasi-transferors. Congreve does not support that result. Its Court of Appeal accepted that a taxpayer might procure another person to transfer assets, but rejected the suggestion that a shareholder, even one owning all or practically all the shares, thereby executes the company’s transfer. The person treated as procured there was Mrs Congreve’s father, not her company. Remarks in Vestey about someone associated with a transfer were not a statutory test and arose in a case where the beneficiaries had no involvement in the transfer.
The Court found no workable threshold for treating shareholders as having made a company’s transfer. A vote in favour, control of most of the shares, or a failure to block the sale did not make the company’s property the shareholder’s property. Elsewhere Parliament had expressly defined when control of a company mattered for tax. It had not adopted such a test here.
The Court left the possible meaning of being “associated with” a transfer to a future case with suitable facts. It was clear that these shareholders, although also directors, neither made nor procured SJA’s transfer. A person who actually receives a benefit may still be charged under section 740. The Upper Tribunal had also noted that deliberately interposing a UK company as a device might be treated differently, but SJA was a genuine company which had traded for many years. If a gap remains, legislation can fill it.
Verdict: The Supreme Court unanimously allowed Stephen and Peter Fisher’s appeals and dismissed HMRC’s appeal concerning Anne Fisher. The family members had not transferred the business, individually or together. On the legislation applicable to the assessments, section 739 did not charge them on the Gibraltar company’s profits.
Source: Commissioners for His Majesty’s Revenue and Customs v Fisher and another [2023] UKSC 44
