For many years, legislation has been in place which counters attempts to avoid tax by shifting assets abroad. Predictably, it’s known as the Transfer of Assets Abroad (“TOAA”) code. Specifically, it has effect for the purpose of:
“preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfer 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.”
It’s one of the (several) reasons why simply popping assets into an overseas trust isn’t effective in saving tax; nor is hiring yourself out for a pittance to a tax haven “slave-master” company that then sells your services back into the UK.
Of course, the scope of the TOAA legislation is much wider than that. But not, as we now know thanks to the recent Upper Tribunal decision in Fisher [2020] UKUT 62 (TCC), quite as wide as HMRC would have you believe.
The Fishers owned shares in a UK trading company. It paid tax on its profits and the Fishers paid income tax on the remuneration and dividends that they drew. For good commercial reasons the UK company sold its business to a company that the Fishers also controlled, but which was resident in Gibraltar. On selling its business the UK company charged a proper commercial price and paid tax on the gain accordingly.
The Fishers continued to pay the same income tax on remuneration and dividends from the Gibraltarian company as they had previously paid on remuneration and dividends from the UK company: the transaction did not reduce anyone’s income tax bill by so much as a penny. (In fact, the transaction was to do with saving UK Betting Duty. The case has much to say about whether Betting Duty is a “tax” and whether the arrangements involved “mitigation” or “avoidance”: but these are peripheral to what we have to say here.)
HMRC nonetheless took the view that the Fishers had jointly transferred assets (the business) as a result of which income (profits of the business) had arisen to a non-resident (the Gibraltarian company) and that under the TOAA rules they were liable to pay income tax on those profits.
The taxpayers resisted on several levels.
The first was that since no income tax had in fact been avoided, the TOAA rules (which exist to “prevent the avoiding of liability to income tax”, remember) could not apply. Pretty basic point, you’d have thought, though as the Tribunal noted: “This appears to be the first time this argument has been explicitly advanced in the reported cases”.
Rather disappointingly, after detailed analysis, the Tribunal ended up answering the wrong question, merely concluding that the rules are “capable of applying even in a situation where the taxpayer was not seeking to avoid income tax by making the relevant transfer.” (Yes, very possibly: but the question was not whether the rules were prevented from applying if the taxpayer was not seeking to avoid income tax but had done so incidentally or accidentally: it was whether they were prevented from applying if no income tax was in fact avoided – a very different question.)
The taxpayers fared better on their second argument, namely that if there was a transfer it was made by the UK company and not by the Fishers. That argument commended itself to the Tribunal: there had been no transfers of assets made by individuals and (distinguishing comments made in some earlier cases) it was not possible to impute to the Fishers as “quasi-transferors” either collectively or individually by virtue of their directorship or shareholding in the UK company a transfer made by the UK company.
That was enough for the Tribunal to find in favour of the Fishers. But this was an important case, and we expect it to go further.
Meanwhile, for advice and assistance on the TOAA rules, please get in touch with your usual BKL contact or use our enquiry form.
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