Tax cases

Rysaffe confirmed

Two brothers settled property on similar discretionary trusts, executing five trust deeds in respect of initial nominal sums of £10. Shares held by each of them in the company were subsequently added to the settlements. The sole trustee was resident in Guernsey. The Revenue said that the holdings of shares comprised in five identical funds settled by each brother were to be taken as property comprised in one settlement, not in five separate settlements. The trustee argued that there were five separate settlements.

The Special Commissioner found for the Revenue, but the High Court overturned that decision, on the grounds that inheritance tax should be calculated on the basis that each brother had made five separate settlements. Section 43 did not entitle the Revenue to treat five settlements as if they were one settlement. The Revenue appealed.

The Court of Appeal said that applying the provisions of section 43 in their ordinary and natural sense, each of the five trust deeds executed by each brother was to be taken to be a settlement for the purposes of Inheritance Tax Act 1984, because each of them satisfied the definition of settlement in section 43(2)(b). Thus there were five settlements, each comprising 6,900 shares, and not just one settlement.

The Revenue's appeal was dismissed.

(Rysaffe Trustee Co (CI) Ltd v Commissioners of Inland Revenue, Court of Appeal, 20 March 2003.)

Alternative assessments

Customs assessed the University Court of the University of Glasgow in respect of underdeclared tax for the period ended January 1998. There were two assessments. The first (the preferred assessment) was based on the disallowance of input tax on the grounds that it was attributable to exempt supplies, and the second (the alternative assessment) was based on the disallowance of input tax on the grounds that there had been an abuse of law. Customs told the appellant that it should pay only the preferred assessment, but that if the other proved to be the correct one, Customs would make appropriate adjustments.

The taxpayer appealed, but the tribunal rejected it. The taxpayer appealed to the Court of Session, claiming that because Customs had made two alternative assessments, they had not used best judgment, within the meaning of section 73(1), VAT Act 1994.

The Court of Session said that where Customs issued two assessments in different amounts at the same time, and clearly shown as being in the alternative, the assessments were interrelated, but not independent. This made them mutually exclusive and not payable in aggregate. The taxpayer could not rely on Customs exercising their discretion under section 73(9) in respect of the tax due, although Customs would not be able to sue for the aggregate amount.

The use of distinct but alternative assessments was within Customs' powers in section 73(1) and was to the best of their judgment.

The taxpayer's appeal was refused.

(University Court of the University of Glasgow, Court of Session, 20 February 2003.)

Non to exit charges

An Advocate General has ruled in favour of the taxpayer in the French case of Monsieur Hughes de Lasteyrie du Saillant v Ministry of the Economy, Finance and Industry (C-9/02). If his opinion is upheld by the European Court of Justice, the implications for United Kingdom and other European Union companies could be substantial.

The case concerned the French residential exit tax payable by an individual on the transfer of his tax residence out of France to Belgium, and whether the exit tax was compatible with the European Community freedom of establishment principle.

An individual becomes liable for the exit charge if he has been tax resident in France for at least six years, and during the five years preceding the transfer has held at least 25 per cent of the share capital of a company subject to corporate income tax. The capital gain is the difference between the market value of the share at the time of the transfer and the acquisition price. The gain can be deferred if certain conditions are met, but becomes due if shares are disposed of in the five-year period following the transfer of residence.

The Advocate General said that the residential exit tax breached the freedom of establishment provisions of the European Community treaty and could not be justified. Furthermore, he said that it could apply to workers' free movement within the European Union. As the Advocate General expressed his conclusion in terms of taxpayers, possible damages claims may arise from corporate taxpayers in various European Union states which impose a similar charge. The United Kingdom is among those countries, so British companies may have scope to bring similar claims.

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