Transfer of Assets Abroad rules cannot apply to a transfer by a company

In HMRC v Fisher & Anor and HMRC v Fisher Respondent No 2 [2023] UKSC 44, the Supreme Court held that the transfer of a business to Gibraltar could not be a Transfer of Assets Abroad as it was not made by the individual shareholders but by a company owned by them.

The Fisher family built up a successful betting business, Stan James (Abingdon) Limited (SJA). At the relevant time, the shareholders were Anne, Stephen, Dianne and Peter Fisher.

• In 1999 a direct competitor closed its UK telebetting business and relocated to Gibraltar to take advantage of the lower betting duty rates compared to the UK. SJA concluded that unless it followed suit and relocated to Gibraltar too, the business would fold.
• To comply with betting laws a separate company Stan James Gibraltar Ltd (SJG) was incorporated in Gibraltar by the Fishers.
• In February 2000, the entire telebetting business of SJA was transferred to SJG at market value.
• HMRC raised Discovery assessments against Stephen, Anne and Peter Fisher (the Fishers) taxing the profits of SJG for the years 5 April 2001 to 5 April 2008 under the Transfer of Assets Abroad (TOAA) provisions at s.739 ICTA 1988. Dianne was excluded as she was not UK resident. The assessments were raised on the basis that:
  • There had been a transfer of assets (the business of SJA to SJG).
  • Stephen, Anne and Peter had the ‘power to enjoy’ those assets by virtue of their shareholdings.
  • The transfer had the purpose of avoiding taxation (betting duty).
• The taxpayers Appealed the assessments

The First Tier Tribunal held:

• Anne’s appeal was allowed as she was an Irish citizen and the TOAA code was not compatible with rights granted under European Union law.
• Stephen and Peter’s appeals were dismissed.
• Appeals against some of the discovery assessments were allowed as they had not been validly issued.

Both HMRC and the taxpayers appealed to the Upper Tribunal which found:

• The TOAA rules were not engaged as the taxpayers had not procured the transfer of assets.
• Even if they had applied, the transaction was not made for tax avoidance reasons as it was made to save the underlying business, so the 'motive defence' could have been relied upon.

HMRC appealed to the Court of Appeal. The majority of judges allowed HMRC’s appeals finding that:

• The fact that the transfer was made by SJA and not the taxpayers did not prevent the TOAA provisions from applying:
  • Stephen and Peter procured the transfer, they were heavily involved in the running of the business and brought about the transfer of assets to SJG. shareholdings.
  • Anne did not procure the transfer, she was not involved in the decision-making of the business.
• Income Tax did not need to have been avoided for the TOAA rules to apply.
• While the transaction was a bona fide commercial transaction, the avoidance of betting duty was one of the main purposes of the transaction.
• The disputed discovery assessments were validly raised. The HMRC officer was not aware of an actual insufficiency of tax at the relevant time.

The Supreme Court allowed the taxpayers’ appeals:

• The TOAA provisions are limited to charging individuals who transfer assets abroad.
• The fact that the Fishers were the shareholders of the transferor business, SJA, did not make them the transferors for the purposes of the TOAA rules. The rules do not apply to an individual in relation to a transfer made by a company in which they are a shareholder, regardless of the size of their shareholding which is borne out by the fact that in contrast to other legislative provisions, the TOAA code does not provide any framework for determining when an individual should be treated as controlling a company for the purpose of applying the rules
• The Fishers were therefore not (either individually or collectively) the transferors of the business from SJA to SJG and the TOAA provisions could not apply.
• As a result, the validity of the discovery assessments did not need to be addressed by the court.

The court went on to comment that this did not, as HMRC had asserted, leave a loophole allowing taxpayers to put assets into a company and then get the company to transfer those assets abroad. Section 740 ICTA provides for non-transferors to be liable where s.739 does not apply, though only where they have received a benefit as a consequence of the transfer rather than simply where there is a power to enjoy which is what s.739 provides for.

Useful guides on this topic

Transfer of Assets Abroad (TOAA)
What are the TOAA rules? When do they apply? Is there any defence against the rules?

Discovery Assessments
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External link

HMRC v Fisher & Anor and HMRC v Fisher Respondent No 2 [2023] UKSC 44