The UK Supreme Court recently handed down the final judgment in the long-running Fisher1 Transfer of Assets Abroad (TOAA) litigation, reversing the Court of Appeal’s decision (itself overturning the Upper Tribunal’s earlier judgment).
To state the facts simply, the case concerned the sale in 2000 of a business by a UK company to a company in Gibraltar. Both companies were owned by four members of the Fisher family (parents and children), although in different proportions (with none holding a majority share). These individuals were also the directors of the respective companies. It had previously been determined that the transfer of the business had been carried out in order to avoid UK gaming duty, which was a tax avoidance purpose under the TOAA regime. The essential question for the Tribunals and Courts was whether the Fishers should be taxed under the primary charge in the TOAA regime,2 by which income arising to a non-resident entity (typically a trust or company) can be taxed on a UK individual who has transferred assets to that entity.
The Supreme Court judgment
The Supreme Court’s judgment dealt with two questions.
- Does the individual charged to tax have to be the “transferor” of the assets?
Put another way, does the primary TOAA charge bite only on a “transferor” (i.e. the individual who actually transfers the assets)? Answer: “yes”. In considering this, the Supreme Court held that the transfer must be made by the same person who then has the power to enjoy the income from the relevant assets.
Those familiar with the TOAA regime will consider this a reassuring – if unsurprising – result. The Supreme Court’s decision confirms that nothing has changed in this regard since the 1980s when this question was settled by the House of Lords in Vestey3 (which the current case effectively retried).
- In what circumstances, if ever, are shareholders in a company treated as transferors under the TOAA regime in relation to a transfer of assets by the company?
This is perhaps the more interesting question. Giving the judgment, Lady Rose concluded that the mere fact that an individual is a shareholder in a company does not, in and of itself, make that individual a transferor where that company makes a transfer of assets (nor does the fact that the shareholders may also be the directors alter this analysis).
To hold otherwise would be very problematic in respect of minority shareholders (such as the Fishers), who do not individually have the power to “procure” any transfer. Indeed, even where controlling shareholders are concerned, the absence of any definition of “control” in the TOAA legislation (in contrast with other tax codes where this concept is clearly defined), makes it difficult to draw any “bright line” and begs the conclusion that even a 100% shareholder cannot necessarily be termed a “transferor” in respect of a company’s actions.
A “lacuna in the legislation”?
As the judgment points out, on the face of it, the Supreme Court’s decision does highlight an apparent “loophole” in the regime: “HMRC may consider that this leaves a lacuna in the legislation since all an individual needs to do is put the asset into a company and then get the company to transfer the asset abroad.” In answer to that objection, Lady Rose gave three responses.
- First, the secondary “benefits charge” under the TOAA regime kicks in where the charge on transferors does not apply; meaning, broadly, that a non-transferor will not escape a tax charge if they actually receive a benefit (income or capital) from the transferred assets in the UK.
- Second, the Supreme Court’s decision does not do away with the concept of a “quasi-transferor” (that is, someone who “procures” that a transfer is made by another person). As such, a taxpayer who intentionally transfers assets into a UK company - as a “device” - that then transfers those assets to a person abroad will still likely be caught as a transferor.
- Thirdly, and more ominously, the Government are free to legislate to “fill the gap” if they so choose.
This decision (which to a large extent reinstates the decision of the Upper Tribunal on the “quasi-transferor” point) will no doubt provoke much thought in certain corners of the tax world. We will have to wait and see whether the Government consider that changes to the current rules are required; not least, since the Supreme Court’s decision now establishes a precedent of placing some limits on HMRC’s (often somewhat broad) application of the TOAA provisions. If the Government does “think carefully about how to fill th[e] gap in a fair, appropriate and workable manner”, drafting any changes will be challenging to say the very least.
1 In full, HMRC v Fisher  UKSC 44.
2 Now, s. 720, Income Tax Act 2007, but at the time of the transaction, s. 739, Income and Corporation Taxes Act 1988.
3 In full, Vestey v Inland Revenue Comrs (Nos 1 and 2)  AC 1148.