Tax Cases

Salvo against offshore companies

The House of Lords has upheld the Court of Appeal's decision in Regina v Allen and Regina v Dimsey. Mr Allen and Mr Dimsey were both convicted of cheating the public revenue. They had been found to have hidden the fact that they managed and controlled in the United Kingdom the businesses of various offshore companies, in order to give the impression that the companies were not United Kingdom resident and thereby avoid United Kingdom corporation tax.

The appeal before the House of Lords was made on the grounds firstly, that under section 739(2), Taxes Act 1988, the income of the offshore companies was deemed to be the income of the defendant, rather than that of the companies, and therefore could not be liable to corporation tax. Secondly, it was argued that as a shadow director, Mr Allen was not liable to tax in respect of the provision of living accommodation and benefits in kind.

The House of Lords dismissed the first point, ruling that section 739 deems offshore income to be that of the individual for 'all the purposes of the Income Tax Acts', and therefore does not exclude corporation tax.

As to the second point about shadow directors, Mr Allen had used accommodation owned by his offshore companies, and the Revenue had raised assessments on the grounds that he was effectively a director of the companies, and therefore taxable on the use of the property as a benefit in kind, a shadow director being under section 168(8), Taxes Act 1988, 'someone in accordance of whose instructions the company is accustomed to act'.

Their Lordships said that it was clearly the intention of Parliament that accommodation and benefits in kind received by shadow directors should be taxed in the same way as those received by directors, which under sections 145 and 154 provided that they should be taxed as emoluments from an office or employment. They acknowledged that the link between the shadow director and the accommodation or benefits received by the company might be tenuous, but said that often the services of a shadow director were as valuable as those from an actual director, and there would be no real distinction between the offices.

The appeal therefore also failed on this point.

Finally, a new point was raised concerning human rights, section 20(1), Taxes Management Act 1970, and the use of Hansard. This had not been put before the Court of Appeal since the human rights legislation had not been enacted by the time the case was heard there. It was argued that a section 20(1) notice violated Mr Allen's human rights, and that subsequent use of the Hansard procedure had both threatened and induced the defendant to produce a schedule of assets to which the offences related. His right to a fair trial was invalidated, because his right under Article 6 of the European Convention of Human Rights not to incriminate himself was breached.

The Lords said that the Human Rights Act could not act retrospectively, and therefore the appeal failed on this aspect too. However, they added that as Mr Allen had not given the full facts, there could have been no inducement. Furthermore, in order to ensure that the correct taxes were paid, a democratic state had to have the power to require its citizens to inform it of the amount of their annual income, and have sanctions available to enforce the provision of that information. Thus, a notice under section 20(1) requiring information could not constitute a violation of the right against self incrimination.

(R v Allen, House of Lords, 11 October 2001; R v Dimsey, House of Lords, 11 October 2001.)

Issue: 3829 / Categories: