“ 739 Prevention of avoidance of income tax (1) … the following provisions of this section shall have effect for the purpose of preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfers of assets by virtue or in consequence of which, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled outside the United Kingdom. (1A) Nothing in subsection (1) above shall be taken to imply that the provisions of subsections (2) and (3) below apply only if— (a) the individual in question was ordinarily resident in the United Kingdom at the time when the transfer was made; or (b) the avoiding of liability to income tax is the purpose, or one of the purposes, for which the transfer was effected. (2) Where by virtue or in consequence of any such transfer, either alone or in conjunction with associated operations, such an individual has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a person resident or domiciled outside the United Kingdom which, if it were income of that individual received by him in the United Kingdom, would be chargeable to income tax by deduction or otherwise, that income shall, whether it would or would not have been chargeable to income tax apart from the provisions of this section, be deemed to be income of that individual for all purposes of the Income Tax Acts”
“ 742 Interpretation of this Chapter (1) For the purposes of this Chapter, “an associated operation” means, in relation to any transfer, an operation of any kind effected by any person in relation to any of the assets transferred or any assets representing, whether directly or indirectly, any of the assets transferred, or to the income arising from any such assets, or to any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets. It is immaterial whether the operation is effected before, after, or at the same time as the transfer. (2) An individual shall, for the purposes of section 739, be deemed to have power to enjoy income of a person resident or domiciled outside the United Kingdom if— (a) the income is in fact so dealt with by any person as to be calculated, at some point of time, and whether in the form of income or not, to enure for the benefit of the individual; or (b) the receipt or accrual of the income operates to increase the value to the individual of any assets held by him or for his benefit; or (c) the individual receives or is entitled to receive, at any time, any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the associated operations on that income and on any assets which directly or indirectly represent that income; or (d) the individual may, in the event of the exercise or successive exercise of one or more powers, by whomsoever exercisable and whether with or without the consent of any other person, become entitled to the beneficial enjoyment of the income; or (e) the individual is able in any manner whatsoever, and whether directly or indirectly, to control the application of the income. (3) In determining whether an individual has power to enjoy income within the meaning of subsection (2) above – (a) regard shall be had to the substantial result and effect of the transfer and any associated operations, and (b) all benefits which may at any time accrue to the individual (whether or not he has rights at law or in equity in or to those benefits) as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits. (4) Subsection (5) below applies where a person resident or domiciled outside the United Kingdom throughout any chargeable period in which an interest period (or part of it) falls would, at the end of the interest period, have been treated under section 714(2) as receiving annual profits or gains or annual profits or gains of a greater amount if he had been resident or domiciled in the United Kingdom during a part of each such chargeable period. (5) Sections 739 to 741 shall have effect as if the amount which the person would be treated as receiving or the additional amount (as the case may be) were income becoming payable to him; and, accordingly, any reference in those sections to income of (or payable or arising to) such a person shall be read as including a reference to such an amount. (6) Where income of a person resident or domiciled outside the United Kingdom throughout any chargeable period in which an interest period (or part of it) falls consists of interest— (a) which falls due at the end of the interest period, and (b) which would have been treated under section 714(5) as reduced by an allowance or an allowance of a greater amount if he had been resident or domiciled in the United Kingdom during a part of each such chargeable period, then for the purposes of sections 739 to 741, the interest shall be treated as being reduced by the amount of the allowance or by the additional amount (as the case may be). (7) In subsections (4) to (6) above “interest period” has the meaning given by section 711. (8) For the purposes of sections 739 to 741, any body corporate incorporated outside the United Kingdom shall be treated as if it were resident outside the United Kingdom whether it is so resident or not. (9) For the purposes of sections 739 to 741— (a) a reference to an individual shall be deemed to include the spouse or civil partner of the individual; (b) “assets” includes property or rights of any kind and “transfer”, in relation to rights, includes the creation of those rights; (c) “benefit” includes a payment of any kind;… (d) references to assets representing any assets, income or accumulations of income include references to shares in or obligations of any company to which, or obligations of any other person to whom, those assets, that income or those accumulations are or have been transferred. (9A) Where the trustees of a settlement are treated, by virtue of section 685E(7), as neither resident nor ordinarily resident in the United Kingdom, then for the purposes of this Chapter they shall be treated as resident and domiciled outside the United Kingdom.”
“ S 743 Supplemental provisions (1) Income tax at the basic rate, the lower rate or the dividend ordinary rate shall not be charged by virtue of section 739 in respect of any income to the extent that it has borne tax at that rate by deduction or otherwise but, subject to that income to which section 739 applies shall be charged to income tax. (1ZA) The charge to income tax under subsection (1) above operates on income falling within subsection (1A) below by treating the income as if it were income to which section 1A applies by virtue of subsection (2)(b) of that section. (1A) Income falls within this subsection if it is— (a) income chargeable under Chapter 3 of Part 4 of ITTOIA 2005 (dividends etc. from UK resident companies etc.); (b) income chargeable under Chapter 4 of that Part (dividends from non-UK resident companies); (c) income chargeable under Chapter 5 of that Part (stock dividends from UK resident companies); (d) income chargeable under Chapter 6 of that Part (release of loan to participator in close company); or (e) a relevant foreign distribution chargeable under Chapter 8 of Part 5 of that Act (income not otherwise charged). (1B) In subsection (1A) “relevant foreign distribution” means any distribution of a company not resident in the United Kingdom which– (f) is not chargeable under Chapter 4 of Part 4 of ITTOIA 2005, but (b) would be chargeable under Chapter 3 of that Part if the company were resident in the United Kingdom. (2) In computing the liability to income tax of an individual chargeable by virtue of section 739, the same deductions and reliefs shall be allowed as would have been allowed if the income deemed to be his by virtue of that section had actually been received by him. (3) An individual who is domiciled outside the United Kingdom shall not be chargeable to tax in respect of any income deemed to be his by virtue of that section if he would not, by reason of his being so domiciled, have been chargeable to tax in respect of it if it had in fact been his income. (4) Where an individual has been charged to income tax on any income deemed to be his by virtue of section 739 and that income is subsequently received by him, it shall be deemed not to form part of his income again for the purposes of the Income Tax Acts. (5) In any case where an individual has for the purposes of that section power to enjoy income of a person abroad by reason of his receiving any such benefit as is referred to in section 742(2)(c), then notwithstanding anything in subsection (1) above, the individual shall be chargeable to income tax by virtue of section 739 for the year of assessment in which the benefit is received on the whole of the amount or value of that benefit except in so far as it is shown that the benefit derives directly or indirectly from income on which he has already been charged to tax for that or a previous year of assessment.”
“… interpreted as applying only where the person sought to be charged made , or maybe, was associated with the transfer …”
“But even if we were prepared to accede to the argument that the preamble connoted activity by the individual concerned, we think that this condition would be fulfilled if the execution of the transfer were procured by the individual concerned even though it was not actually executed by him or his agent. …it is, we think, in the present case, a reasonable inference from the facts found that the execution and performance of the transfers and associated operations in question by all the companies concerned were procured by Mrs. Congreve acting through her agent Mr. Glasgow. We should have been prepared, if it had been necessary, on this alternative ground to uphold the decision of the Commissioners.”
“So here we have it established that a person who is not a transferor may nevertheless be liable as if he were a transferor, if he “procured” the transfer. It is convenient to use the phrase of junior counsel for the Crown and call such a person a “quasi transferor”
“…what the Special Commissioners had to decide on this topic was, quite simply, notwithstanding that the transfer was a transfer made by the Company itself, was the reality of the matter that somebody else was the real transferor? To answer that question, nobody has so far produced a better suggestion than that of "procurement". It may not be completely apt, but it is far nearer an apt definition than anything else which has so far been suggested.”
“The only authority dealing with quasi-transferors so far as a company is concerned - or indeed at all – is Congreve’s case, and what that case does is, whilst recognising that a transfer by an individual, even one owning 99.9% of the shares of the company, is not the same as a transfer by the company, to hold that a transfer by the company “procured” by a quasi-transferor holding the vast majority of the shares in the company is to be regarded as having been made by the quasi transferor himself. The word used by Cohen LJ was “procured”
“For an individual to be the transferor in relation to a transfer by another individual would be a considerable extension of this principle. However, there might be cases where, as a matter of fact, one individual's influence over another was so strong that he was the transferor of the other's shares but this would clearly be an exceptional case…”
“The term “procure” is not a term which was set out in the statute and is, as Walton J put it in Pratt , a question of who the transferors are in reality. It is implicit in Walton J's obiter comment (set out at [173] above) that “two or three” owners of a company could (aside from his fundamental legal objections in relation to apportionment as discussed above) be quasi-transferors and therefore given what he says about procurement that in the case of a small jointly owned company that there could be more than one person procuring. Joint procurement is therefore possible in principle.”
“For an individual to be the transferor in relation to a transfer by another individual would be a considerable extension of this principle. However, there might be cases where, as a matter of fact, one individual's influence over another was so strong that he was the transferor of the other's shares but this would clearly be an exceptional case…”
“an operation of any kind effected by any person in relation to any of the assets transferred or any assets representing, whether directly or indirectly, any of the assets transferred, or to the income arising from any such assets, or to any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets.”
“In order to understand the line thus drawn, submitted Mr. Henderson, it was essential to understand what was meant by "tax avoidance" for the purposes of section 741. Tax avoidance was to be distinguished from tax mitigation. The hall mark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hall mark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option. Where the tax payer's chosen course is seen upon examination to involve tax avoidance (as opposed to tax mitigation), it follows that tax avoidance must be at least one of the taxpayer's purposes in adopting that course, whether or not the taxpayer has formed the subjective motive of avoiding tax. My Lords, I am content for my part to adopt these propositions as a generally helpful approach to the elusive concept of "tax avoidance", the more so since they owe much to the speeches of Lord Templeman and Lord Goff of Chieveley in Ensign Tankers Leasing Ltd. v. Stokes [1992] 1 A.C. 655 at 675C-676F and 681B-E. One of the traditional functions of the tax system is to promote socially desirable objectives by providing a favourable tax regime for those who pursue them. Individuals who make provision for their retirement or for greater financial security are a familiar example of those who have received such fiscal encouragement in various forms over the years. This, no doubt, is why the holders of qualifying policies, even those issued by non-resident companies, were granted exemption from tax on the benefits received. In a broad colloquial sense tax avoidance might be said to have been one of the main purposes of those who took out such policies, because plainly freedom from tax was one of the main attractions. But it would be absurd in the context of section 741 to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of section 741 is a course of action designed to conflict with or defeat the evident intention of Parliament . In saying this I am attempting to summarise, I hope accurately, the essence of Mr. Henderson's submissions, which I accept.”
“There is no evidence that the grandfather sought tax advice in relation to UK tax whether from the officers of Barclays, Mr Whiteford, Mr Rothwell or Mr Stanford-Tuck. Equally, there is no evidence that he sought advice from any other source. Certainly there is evidence that he was concerned about and sought advice in relation to Japanese tax but that is not surprising bearing in mind the high levels of taxation there and the sums of money involved. The only reference in the documents to advice in relation to UK tax is concerned with the possibility that he might purchase a residence in this country. In the event he did not do so. … In summary, we accept that UK tax was a consideration of the grandfather’s advisers. They would have been failing in their professional duties if they had not identified the implications of having UK trustees and comparing these with the possible advantages of using Channel island trustees. But we are satisfied from the evidence that the tax implications of siting the trust in Jersey were a matter of indifference to the grandfather.”
“This is because it has involved no real change of investment, as in the two previous examples, but the retention of the UK property, accompanied by a step to change the normal tax consequences of that. Thus where it is shown that the CTT or IHT considerations were one of the purposes of the transfer, or rather where the appellants have not displaced the reasonable presumption that UK [tax] advantages were one of the purposes, I conclude that those purposes involve tax avoidance and not merely tax mitigation.”
“65 In those circumstances, in order for the legislation on CFCs to comply with Community law, the taxation provided for by that legislation must be excluded where, despite the existence of tax motives, the incorporation of a CFC reflects economic reality. 66 That incorporation must correspond with an actual establishment intended to carry on genuine economic activities in the host Member State, as is apparent from the case-law recalled in paragraphs 52 to 54 of this judgment. 67 As suggested by the United Kingdom Government and the Commission at the hearing, that finding must be based on objective factors which are ascertainable by third parties with regard, in particular, to the extent to which the CFC physically exists in terms of premises, staff and equipment. 68 If checking those factors leads to the finding that the CFC is a fictitious establishment not carrying out any genuine economic activity in the territory of the host Member State, the creation of that CFC must be regarded as having the characteristics of a wholly artificial arrangement. That could be so in particular in the case of a ‘letterbox' or ‘front' subsidiary (seeCase C-341/04 Eurofood IFSC [2006] ECR I0000, paragraphs 34 and 35). 69 On the other hand, as pointed out by the Advocate General in point 103 of his Opinion, the fact that the activities which correspond to the profits of the CFC could just as well have been carried out by a company established in the territory of the Member State in which the resident company is established does not warrant the conclusion that there is a wholly artificial arrangement.”
“668 HMRC argue the legislation is proportionate because it is closely targeted on situations in which the transferor has a tax avoidance motive. It does not apply to transactions undertaken purely for commercial reasons. 669 We disagree with HMRC. Even if the objective of the legislation were articulated as the prevention of the avoidance [of tax] in the European sense of the term, as can be seen from our earlier findings, it operates to catch persons who establish in Gibraltar in order to take advantage of the more favourable tax regime but who have not done so using artificial means. It is not therefore closely targeted at those situations (artificiality as described in Cadbury-Schweppes) which count as avoidance in European law but captures persons such as Anne Fisher who exercise freedom of establishment rights into Gibraltar and UK nationals who exercise their freedom of establishment into other Member States. 673 Our conclusion is that the TOAA charge does restrict Anne Fisher’s freedom of 5 establishment (and by extension her free movement of capital) and that it breaches those freedoms in a way which lacks justification. Even if the breach of those freedoms were justified it is not proportionate to any legitimate justification of fighting tax avoidance as that concept is understood in European law.”
“[84] … in the context of the free movement of capital, the concept of ‘wholly artificial arrangements’ cannot necessarily be limited to merely the indications referred to in paragraphs 67 and 68 of the judgment of12 September 2006 , Cadbury Schweppes and Cadbury Schweppes Overseas (C-196/04, EU:C:544), that the establishment of a company does not reflect economic reality, since the artificial creation of the conditions required in order to escape taxation in a Member State improperly or enjoy a tax advantage in that Member State improperly can take several forms as regards cross-border movements of capital. Indeed, those indications may also amount to evidence of the existence of a wholly artificial arrangement for the purposes of applying the rules on the free movement of capital, in particular when it proves necessary to assess the commercial justification of acquiring shares in a company that does not pursue any economic activities of its own. However, that concept is also capable of covering, in the context of the free movement of capital, any scheme which has as its primary objective or one of its primary objectives the artificial transfer of profits made by way of activities carried out in the territory of a Member State to third countries with a low tax rate. ”