UBS AG devised an employee bonus scheme to take advantage of the provisions of Chapter 2 of the 2003 Act, with the sole purpose other than tax avoidance, and such consequential advantages as would flow from tax avoidance. Several pre-ordained steps were taken according to a detailed timetable. Once the structure of the scheme had been finalised, a brochure was sent to the employees explaining it in detail and inviting their participation. 426 employees agreed to participate. Some of the documentation required under the scheme, such as board minutes of the vehicle company, was pre-drafted. The scheme was then implemented as planned.
Held: The Revenue’s appeals were allowed. The tax system is to work real world transactions, and those transactions manufactured for no reason other than for tax avoidance should not encouraged. The exemption allowed under section 423 is to be construed to apply only to transactions having a real world purpose: ‘ the reference in section 423(1) to ‘any contract, agreement, arrangement or condition which makes provision to which any of subsections (2) to (4) applies’ is to be construed as being limited to provision having a business or commercial purpose, and not to commercially irrelevant conditions whose only purpose is the obtaining of the exemption.’
Lord Reed reiterated that whatever the context (in casu tax) the ultimate question was always one of statutory construction: ‘Unfortunately’, the Committee commented in Barclays Mercantile at para 34, ‘the novelty for tax lawyers of this exposure to ordinary principles of statutory construction produced a tendency to regard Ramsay as establishing a new jurisprudence governed by special rules of its own’. In the Barclays Mercantile case the Committee sought to achieve ‘some clarity about basic principles’. It summarised the position . . ‘The essence of the new approach was to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then to decide whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answered to the statutory description . . As Lord Nicholls of Birkenhead said in MacNiven v Westmoreland Investments Ltd [2003] 1 AC 311, 320, para 8: ‘The paramount question always is one of interpretation of the particular statutory provision and its application to the facts of the case”.
Judges:
Lord Neuberger, President, Lord Mance, Lord Reed, Lord Carnwath, Lord Hodge
Citations:
[2016] UKSC 13, [2016] STI 513, [2016] 1 WLR 1005, [2016] STC 934, [2016] 3 All ER 1, [2016] BTC 11, [2016] WLR(D) 133, UKSC 2014/0151
Links:
Bailii, Bailii Summary, WLRD, SC, SC Summary
Statutes:
Income Tax (Earnings and Pensions) Act 2003 423
Jurisdiction:
England and Wales
Citing:
Cited – W T Ramsay Ltd v Inland Revenue Commissioners HL 12-Mar-1981
The taxpayers used schemes to create allowable losses, and now appealed assessment to tax. The schemes involved a series of transactions none of which were a sham, but which had the effect of cancelling each other out.
Held: If the true nature . .
Cited – Barclays Mercantile Business Finance Ltd v Mawson (HM Inspector of Taxes) HL 25-Nov-2004
The company had paid substantial sums out in establishing a gas pipeline, and claimed those sums against its tax as capital allowances. The transaction involved a sale and leaseback arrangement which the special commissioners had found to be a . .
At CA – DB Group Services (UK) Ltd v Revenue and Customs CA 16-Apr-2014
The two companies had established schemes designed to minimise tax on payments to employees, using a purpose made company to take advantage of exemptions under section 423. In oe cse the Revenue appealed against rejection of its challenge,nd in the . .
Cited – Weight (HM Inspector of Taxes) v Salmon HL 4-Mar-1935
TC Income Tax, Schedule E-Emolument of office – Salaried director – Right to take up shares at par value, their market value being considerably higher.
Where an employee receives shares as part of his . .
Cited – Abbott v Philbin (Inspector of Taxes) HL 21-Jun-1960
A company’s senior employees had been given an option to subscribe for its shares at the then current market price, the option being exercisable at any time within the next ten years. The employees were thus incentivised to increase the company’s . .
Cited – Snook v London and West Riding Investments Ltd CA 1967
Sham requires common intent to create other result
The court considered a claim by a hire-purchase company for the return of a vehicle. The bailee said the agreement was a sham.
Held: The word ‘sham’ should only be used to describe an act or document where the parties have a common intention . .
Cited – Inland Revenue Commissioners v Scottish Provident Institution HL 25-Nov-2004
The parties anticipated a change in the system for taxing gains on options to buy or sell bonds and government securities. An option would be purchased before the change and exercised after the change to create losses which could be set off against . .
Cited – Grays Timber Products Ltd v Revenue and Customs SC 3-Feb-2010
An assessment to income tax had been raised after the employee resold shares in the company issued through the employees’ share scheme at a price which the Revenue said was above the share value. The company appealed against a finding that tax was . .
At FTTTx – UBS Ag v Revenue and Customs FTTTx 15-Sep-2010
FTTTx Regulation 80, PAYE Regulations – Section 8, Social Security Contributions (Transfer of Functions, etc) Act 1999 – whether sums paid into a share scheme were earnings of the staff for whom they were paid – . .
At FTTTx – Deutsche Bank Group Services (UK) Ltd v Revenue and Customs FTTTx 19-Jan-2011
Regulation 80, PAYE Regulations – Section 8, Social Security Contributions (Transfer of Functions, etc) Act 1999 – whether sums paid into a share scheme were earnings of the staff for whom they were paid – whether the shares purchased as part of the . .
At UT – UBS AG v HM Revenue and Customs UTTC 17-Sep-2012
UTTC Income Tax and NICs: scheme to deliver bonuses in form of shares avoiding income tax and NIC. S18(1) ITEPA Rule 2 – whether employee became ‘entitled to payment’ when amount of bonus determined. Ch 2 Part 7 . .
Cited – Inland Revenue Commissioners v Burmah Oil Co Ltd HL 3-Dec-1981
HL Corporation tax – Chargeable gains – Allowable losses – Tax avoidance scheme involving disposal of shares by parent company following rights issue by subsidiary company – Consideration for rights issue – . .
Cited – Furniss (Inspector of Taxes) v Dawson HL 9-Feb-1983
The transfer of shares to a subsidiary as part of a planned scheme immediately to transfer them to an outside purchaser was regarded as a taxable disposition to the outside purchaser rather than an exempt transfer to a group company. In defined . .
Cited – Commissioners of Inland Revenue v McGuckian HL 21-May-1997
Steps which had been inserted into a commercial transaction, but which had no purpose other than the saving of tax are to be disregarded when assessing the tax effect of the scheme. The modern approach to statutory construction is to have regard to . .
Cited – Collector of Stamp Revenue v Arrowtown Assets Ltd 4-Dec-2003
(Hong Kong Final Court of Appeal) The court was asked as to the accounting treatment of interests incurred in the development for the purpose of generating the profits, and therefore whether the relevant Ordinance prohibited the capitalisation of . .
Cited – Carreras Group Limited v The Stamp Commissioner PC 1-Apr-2004
PC (Jamaica) The transfer of shares in exchange for a debenture with a view to its redemption a fortnight later was not regarded as an exempt transfer in exchange for the debenture but rather as an exchange for . .
Cited – Revenue and Customs v Tower MCashback Llp 1 and Another SC 11-May-2011
No re-opening after closure notices
The taxpayer had purchased software licences (SLA), and set out to claim the full cost against its tax liabiilities under the 2001 Act in the first year. The taxpayer said that after the Revenue had issued closure notices, it was not able to re-open . .
Cited – MacNiven (Inspector of Taxes) v Westmoreland Investments Ltd HL 15-Feb-2001
The fact that a payment of interest was made only to create a tax advantage did not prevent its being properly claimed. Interest was paid for the purposes of setting it against tax, when the debt was discharged. A company with substantial losses had . .
Cited by:
Cited – National Aids Trust v National Health Service Commissioning Board (NHS England) Admn 2-Aug-2016
NHS to make drug available
The claimant charity said that drugs (PrEP) prophylactic for AIDS / HIV should be made available by the defendant and through the NHS. The respndent said that the responsibility for preventative medicine for sexual health lay with local authorities. . .
Cited – Uber Bv and Others v Aslam and Others SC 19-Feb-2021
Smartphone App Contractors did so as Workers
The court was asked whether the employment tribunal was entitled to find that drivers whose work was arranged through Uber’s smartphone application work for Uber under workers’ contracts and so qualify for the national minimum wage, paid annual . .
Lists of cited by and citing cases may be incomplete.
Income Tax, Banking
Updated: 08 August 2022; Ref: scu.560718