The Court of Appeal (CoA) has decided on a case regarding the transfer of assets aboard legislation (TOAA code) in relation to a betting business.  The taxpayers were shareholders in a UK company that operated a betting business but then transferred the business to a Gibraltar company that the taxpayers were also shareholders of.

At the time of the business transfer, betting duty was appliable to UK bets at a rate of 6.75% or 7.75% depending on whether horseracing was bet on.  The appliable rate in Gibraltar was 1%.  The taxpayers transferred their business from the UK company to the Gibraltar company to avoid the betting duty as many other companies in the industry at the time did.  The questions before the CoA were:

1. Did the transfer of the business having been affected by the UK company rather than the taxpayers personally, was the TOAA code engaged at all?
2. Must income tax have been avoided for the TOAA code to apply?
3. Was the motive defence available?
4. Was the TOAA code compatible with European Union law?
5. Was some of the Gibraltar company’s income too remote from the transfer of the business to be the subject of a charge?
6. Were the assessments on the taxpayers defective having regard to the requirements of section 29 of the Taxes Management Act 1970?

The CoA found that the TOAA code did apply to ‘quasi-transferors’, that the taxpayers were considered to be (since the UK company had actually transferred the business to the Gibraltar company and not the actual taxpayers), even if individually each of the taxpayers didn’t control the UK company while noting that if someone hadn’t ‘procured’ the transfer then the charge wasn’t applicable.  In this case, the wife and the mother of the other taxpayers hadn’t been involved in the decision to transfer the business to Gibraltar so the TOAA code charge couldn’t apply to her as she hadn’t ‘procured’ the transaction.  This was a contentious point and one of the judges disagreed with this analysis, stating that all taxpayers couldn’t be considered ‘quasi-transferors’, but a majority of the CoA found that the charge did apply.

The CoA also found that income tax didn’t need to be actually avoided for the TOAA code charge to apply.  It also found that the motive defence wasn’t appliable in this case as even though it was a transaction for bone fide commercial reasons the main point of the transfer was to avoid betting duty that is also a tax.  The CoA also found that the TOAA code charge in this case wasn’t in breach of EU law as Gibraltar is considered part of the UK for the purposes of EU law.  The CoA also found that later income streams of the Gibraltar company could be taxed under the TOAA code charge as they were funded from the income of the transferred business.  Finally, the CoA found that the discovery assessment raised by HMRC were valid as the taxpayers hadn’t submitted copies of the accounts of the Gibraltar company for the relevant tax years.

The decision can be found at: Revenue And Customs v Fisher & Ors [2021] EWCA Civ 1438 (06 October 2021) (bailii.org)

Please contact us if you have any questions with the transfer of assets abroad legislation.  This case has highlighted the wide scope that the TOAA code charge has and that it is possible for a taxpayer to be within the charge even where they are a minority shareholder of a company and there is no evidence they have acted in concert with other people.