Transfer Of Assets Abroad: A Narrow Interpretation That Favoured The Taxpayers
An important Supreme Court win for a family-run company whose directors transferred part of the business abroad1 clarifies the limited application of tax rules where individuals (rather than the company) make the transfer.
Anti-avoidance provisions in section 739 Income and Corporate Taxes Act 1988 set out the circumstances where someone who transfers assets to a person overseas may be liable to tax on income arising from those assets after the date of transfer. Unfortunately for HM Revenue & Customs, the application is not nearly as wide as it believed.
The rules are intended to prevent transfers being made for the purposes of the income becoming payable to someone abroad, thus avoiding tax in the UK. The focus of s739 is on who in fact has the ‘power to enjoy’ the income (ie the ability to control how that income is spent).
Though the rules are highly complex, the Supreme Court justices unanimously found in favour of the taxpayers on every point.
The transfer
In this case, a major part of a family betting business was transferred from the UK company to a company resident in Gibraltar (SJG) in 2000. HMRC issued tax assessments on three of the directors for the subsequent years on the basis that they had power to enjoy the income of the Gibraltar-resident company. It treated the income as their deemed income in proportion to their respective shareholdings in the company, under s739.
One of the directors (the Fishers) won in the Court of Appeal; the remaining two directors appealed to the Supreme Court and HMRC appealed in respect of the other. A key issue was the status of who made the transfer: were the Fishers the transferors – either individually or collectively – the transferors of the betting business sold to SJG for the purposes of s739.
A win for the taxpayer
The Supreme Court unanimously ruled in favour of the Fishers, rejecting HMRC’s cross-appeal and finding that the Fishers were not the transferors for the purposes of s739. The most natural interpretation of s739 is that it is limited to charging ‘individuals’ who make a transfer of assets abroad – a wider interpretation to apply to transfers by companies was inappropriate.
The SC rejected HMRC’s argument that the Fishers, even those owning a controlling interest in SJA, should be treater as the transferors. This was partly because the 1988 Act does not provide a framework for such a basis.
Furthermore, the company was a bona fide company that had been trading for many years and the transfer amounted to a bona fide commercial transaction. This meant the Fishers did not fall within the charging provisions.
Does the ruling expose a gap in the legislation? The Supreme Court acknowledged that there could be – but if the Government considers there is a lacuna to be filled, it needs to consider how to do so in a “fair, appropriate and workable manner”.
1HMRC v Fisher [2023] UKSC 44
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