To be or not to be a quasi-transferor

Procuring a transfer for income tax anti avoidance rules requires activity to do something positive to bring something about.

Procuring a transfer for income tax anti avoidance rules requires activity to do.....

The latest decision on the application of the Transfer of Assets Abroad (TOAA) rules has been released. The Court of Appeal (CA) considered whether the TOAA rules applied to three taxpayers who transferred the business of a UK company they jointly controlled to a newly incorporated Gibraltar company.

The CA found for HMRC in respect of two of the three taxpayers, deciding that they had acted together to procure a transfer by the UK company and were therefore quasi-transferors (though Phillips LJ disagreed). The CA found for the third taxpayer, ruling that the TOAA rules did not apply to them. The CA made this decision because the third taxpayer had ”virtually nothing to do with the busines’” and therefore could not be a quasi-transferor for the TOAA rules, as ‘procure’ means ”doing something positive to bring something about”, not ”passively allowing someone else to do something”.

Having decided this gateway test was met and a transfer had been made, the CA determined that:

  •  Actual avoidance of income tax was not necessary to engage TOAA;
  • The motive defence was not available for the two taxpayers because the avoidance of betting duty was a main purpose of the transfer;
  • The taxpayers’ EU freedoms were not infringed by TOAA on the basis that freedom of establishment is not restricted by a host Member State making it less attractive to work or set up business in one part of the Member State rather than another; and
  • Discovery assessments made by HMRC were valid.

Interestingly, the CA declined to consider arguments made by the taxpayers that the income under consideration arose from bank loans rather than a relevant transfer made by the taxpayer. They ruled that this would be a further finding of fact and as this was not raised in the First-tier Tribunal (FTT) the CA was not entitled to consider the arguments. Comparisons can be drawn to the parallel TOAA case of HMRC v Rialas [2020] UKUT 0367 (TCC), where the taxpayer has made similar arguments in the FTT.

We await further details on whether the taxpayer will appeal to the Supreme Court.

Those who may be affected by the TOAA rules should speak to their local Family Office and Private Client contact to understand the impact of this case on their circumstances.