High Court gives green light for offshore tax clawback - Times Online .
This is an important case for HM Revenue & Customs to win.
The core of the argument was that 2008 legislation that allowed the Revenue to backdate claims against an abusive form of offshore trust were illegal as an infringement of the human right to enjoy property.
The claimant took advantage of a scheme designed and marketed by Montpelier Tax Consultants (Isle of Man). The judge was told that he settled a trust in the Isle of Man, the “Robert Huitson Family Settlement”. The 2008 legislation means that Mr Huitson faces an overall tax demand in excess of £100,000 relating to the money he paid into the family trust back to 2001. As the Times notes:
Court documents reveal that 57 other scheme users say they cannot meet similar tax demands even if they sell all their assets, and another 29 could settle only by selling or remortgaging their family homes.
Several users also say that they face personal bankruptcy.
David Elvin, QC, appearing for Mr Huitson, said that the retrospective provisions of the 2008 Act affected 2,500 scheme users and involved £300 million.
He argued that the retrospective element of the legislation was incompatible with the "right to free enjoyment of property", as protected by Article 1 of Protocol 1 of the European Convention of Human Rights.
However, the judge dismissed the challenge and ruled that HMRC had not acted unlawfully or disproportionately in backdating.
Several key issues come out. First, and as I have been arguing for a while, there is no right to enjoy property if the tax due when securing it has not been paid: the tow are indivisible.
Second, the Revenue do have the right to stop abuse even if theyu have to do so retrospectively.
Thirdly, and almost predictably it was one of the Crown Dependencies at the centre of this abuse, proving yet again they are secrecy jurisdictions.
Fourth, it is vital the Revenue do get cases like this in the press: I welcome the fact they have.
Fifth, the accountancy profession cannot be relied upon to uphold ethical standards or the rule of law. The Times notes:
Chas Roy-Chowdhury, of the Association of Chartered Certified Accountants said: "The case related to a particular trust arrangement but could have implications for similar offshore trust-based schemes.
"It is quite justified for the Government to attack complex schemes set up to avoid tax but it should not do it retrospectively."
That's a false argument: it's just been ruled lawful to pursue tax cheats. the profession should be applauding, not condemning HMRC for doing so. Why is it that accountants are so keen to join bankers in the pit reserved for the pariahs in society?
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This “scheme” was never going to succeed in this day and age. The retrospective argument still has some way to run, I suspect. Is such planning still going on today (I gather that scheme dates back to 2001) ? I suspect not and I sincerely hope not.
I have little sympathy for people who play these kind of games and then expect sympathy when it goes wrong. Big boys games, big boys rules!
I got an eaail from my newly opened local Montpelier asking for a meeting to discuss our clients possibly using their schemes. I didn’t reply.
I see more and more of these pre-packaged scheme houses springing up staffed by salespeople on a commission.
As I say in my own commentary on the TaxBuzz blog, the outcome of this judicial review places another nail in the coffin of ‘artificial’ tax avoidance schemes.
I have no doubt that the promoters of tax avoidance schemes will continue to assert that there is only a very small chance of any future anti-avoidance legislation being retrospective. They may be right as the facts here were specific to Double Tax Agreements. However I am equally sure that the goal posts have moved further together such that the scope for successful avoidance schemes is now smaller than ever.
And as for the sale people on a commission, don’t get me started. They typically know nothing about tax and are persuaded by their ’employers’ that their schemes are all foolproof and above board. They befriend accountants and suss out whether it’s worth the real tax ‘experts’ from the boutique (“pre-packaged scheme house”) meeting designated clients of the accountant. This is presumably more cost effective for the boutique as fewer and fewer accountants are willing to waste their time finding out enough about such schemes to promote them to their clients. I have addressed this a number of times on the TaxBuzz blog.
Word reaches me that questions are tabled in the IOM parliament next week about Montpelier.
Word also reaches me that the taxpayer will appeal.
Interesting times, n’est-ce pas?
Girrl
Hello Mr. Murphy, I thought I’d draw your attention to a story on the iomtoday web site which reports that some in the IOM are annoyed that branches of UK shops have been paying their tax to the UK instead of the Isle of Man, EVEN THOUGH THEY ACCRUED THE PROFITS ON THE ISLE OF MAN. Oh the irony!
http://www.iomtoday.co.im/news/Shops-could-have-to-pay.6052466.jp