Court of Appeal
Published: August 25, 2015
Regina (St Matthews (West) Ltd) v HM Treasury; Regina (St Matthews (West) Ltd) v HM Revenue and Customs
Before Lady Justice Black, Lord Justice Floyd and Lord Justice Vos
Judgment June 30, 2015
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Retrospective legislation which put beyond doubt that supposed tax avoidance schemes were not effective, when under the previous legislation it had been arguable that they would be, did not constitute “deprivation” of the taxpayer’s “possession” for the purposes of article 1 of the First Protocol to the European Convention on Human Rights. The right to a fair trial was not engaged since tax disputes were not within the scope of “civil rights and obligations” for the purposes of article 6 of the Convention.
The Court of Appeal so stated, inter alia, when dismissing the appeals of the claimants, APVCO 19 Ltd, Simon Clark and Nicola Clark, Charles Bracken, Sara Thomas, Mukesh Mittal and Michael Weber, from the decision of Mrs Justice Andrews, sitting in the Administrative Court of the Queen’s Bench Division ([2014] STC 2350) which dismissed their application for permission to bring judicial review proceedings challenging the retrospective effect of amendments to section 45 of the Finance Act 2003 made by section 194 of the Finance Act 2013.
Mr Jeremy Woolf for the claimants; Mr Kieron Beal, QC and Mr Simon Pritchard for the Treasury and Revenue.
LORD JUSTICE VOS said that the claimants had sought to take advantage of what were described as aggressive tax avoidance schemes designed to allow them to escape the payment of stamp duty land tax on their purchases of, mostly, residential property for their own use. The schemes had been designed and marketed by Blackfriars Tax Solutions LLP. The question was not whether the schemes would have actually worked but simply whether the retrospective legislation targeting them violated the Convention.
When the detail was stripped away, the case was really quite straightforward. It was common ground that the challenged legislative changes put beyond doubt what it was also common ground had previously not been beyond doubt, namely that the claimants’ schemes did not work. It was also accepted on both sides that it was not appropriate for the court to usurp the function of the First-tier Tribunal (Tax and Chancery Chamber) by deciding whether the scheme had actually been effective in the first place.
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Unpaid tax could properly be regarded as a possession within the meaning of article 1 of the First Protocol but a claim to tax relief had to be more concrete than a mere hope: see Kopecky v Slovakia ((2005) 41 EHRR 944).
The effects of the legislative changes were that: (1) the claimants’ schemes did not work, so that their argument that the original sale transactions in issue were not subject to stamp duty land tax was rendered unsustainable; and (2) the claimants would accordingly have to pay that tax as due on their original sale transactions.
The second consequence could not by itself be regarded as the deprivation of a possession for the purposes of article 1 of the First Protocol when it was caused entirely by the first consequence of the legislative changes.
In every case where there was an argument as to whether tax was payable, and legislation was changed to make it clear that it was, the potential taxpayer could say that he had been deprived of the tax.
Effectively, that was to seek to divide the alleged deprivation into two parts when it could only be properly regarded as a single step. The claimants had been deprived of an argument that they were not liable to pay the tax. That had been the primary effect of the legislative changes.
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It would be different if the claimants had been challenging the imposition of stamp duty land tax itself. The basis of the rule about claims was that a disputed amount was not in the taxpayer’s possession if there was an arguable claim by the Revenue to it, or if the taxpayer had an arguable claim to it.
The location of the disputed fund could not make a difference. Both sides claimed they were entitled to it and it was not clearly established whether it properly belonged to the taxpayer or to the Revenue. The prior question of whether the taxpayer had a right to the money had to be decided before the taxpayer could claim to have been deprived by the legislative changes of a possession under the First Protocol.
That made sense from a practical point of view. If the taxpayer could show his scheme worked, for example, by obtaining a declaration to that effect, then he clearly had a possession. But if he could not, his claim that he had had a possession interfered with was premature and begged the anterior question. Nobody knew whether the taxpayer had a possession for First Protocol purposes at that stage.
As to article 6 of the Convention: the legislative changes did not deprive the claimants of a fair and public hearing before the First Tier Tribunal and the courts “in the determination of [their] civil rights and obligations”.
The judge had been right to rely upon Ferrazzini v Italy ([2001] STC 1314) where it was made clear that the concept of “civil rights and obligations” in article 6 was an autonomous one and that the European Court of Human Rights considered that “tax disputes fall outside the scope of civil rights and obligations, despite the pecuniary effects which they necessarily produce for the taxpayer”. Tax disputes were not “civil” for the purposes of article 6.
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Lord Justice Floyd gave a judgment concurring in the result. Lady Justice Black gave a judgment agreeing with both judgments.
Solicitors: PWT Advice LLP; Solicitor, HM Revenue and Customs.