Regina v. Dimsey

A statutory provision deeming a foreign transferee’s income to be the transferor’s income for income tax purposes does not, without express words, remove the transferee’s ordinary tax liability on that income. Section 739(2) of the Income and Corporation Taxes Act 1988 therefore leaves a United Kingdom resident transferee liable to income tax or corporation tax, as applicable.

This construction may create a theoretical possibility of double taxation. It nevertheless accords with the provision’s legislative history, its anti-avoidance purpose and related enactments that expressly exclude another person’s liability when Parliament intends that result. The construction also strikes a fair balance under article 1 of Protocol No 1. Effective tax-avoidance legislation falls within the state’s margin of appreciation.

The appellant administered three offshore companies for a United Kingdom resident who beneficially owned and controlled them. He was convicted of conspiring to cheat the public revenue by concealing, among other matters, the companies’ profits. The prosecution presented those profits at trial as subject to corporation tax because the companies were managed and controlled in the United Kingdom.

The Court of Appeal (Criminal Division), in [2000] QB 744, rejected an argument first raised on appeal that section 739(2) of the Income and Corporation Taxes Act 1988 attributed the companies’ income exclusively to their controller. It dismissed the appeal but certified the statutory issue as a point of law of general public importance.

The House considered whether section 739(2) removed the companies’ corporation tax liability and, if it did not, whether concurrent liabilities of transferor and transferee were incompatible with article 1 of Protocol No 1.

1. Appeal dismissed unanimously. Lord Scott of Foscote delivered the leading speech. Lord Bingham of Cornhill, Lord Nicholls of Birkenhead, Lord Steyn and Lord Hutton agreed with his reasons.

2. Per Lord Scott, section 739(2) of the Income and Corporation Taxes Act 1988 deems a foreign transferee’s income to be the transferor’s income for the purposes stated. It does not deem that income to cease being the transferee’s income. The transferee’s ordinary liability to income tax or corporation tax therefore remains unaffected.

3. The legislative history supported that construction. The original provision pre-dated corporation tax and could not have been intended to distinguish company transferees from individuals. Related anti-avoidance provisions expressly stated when deemed income was not to be treated as another person’s income. The absence of equivalent wording from section 739(2) was significant.

4. The possibility of double taxation did not justify enlarging the statutory fiction. Section 743(1) showed that Parliament contemplated income in the transferee’s hands having already borne tax. Lord Scott considered that its failure expressly to cover corporation tax was probably an oversight, but left the provision’s precise construction undecided. The theoretical possibility of concurrent liabilities did not displace the natural construction of section 739(2).

5. Per Lord Scott, the construction was compatible with article 1 of Protocol No 1. The transferor’s deemed liability had a deterrent character and fell within the state’s margin of appreciation in taxation. A transferee resident in the United Kingdom merely remained subject to the ordinary tax liability imposed on other residents. The public interest in effective anti-avoidance legislation outweighed the principally theoretical objections.

6. The prosecution could not have preserved the conviction by recasting its case after trial as one concerning the controller’s income tax liability. The defendants had answered a case based on corporation tax owed by the companies, and the relevant evidence and assessment of intent might otherwise have differed. However, the companies remained liable to corporation tax. There was consequently no legal impediment to the conspiracy conviction.

1. House of Lords: The appeal was dismissed unanimously. The House upheld the conclusion that section 739(2) did not remove the offshore companies’ corporation tax liability.

2. Court of Appeal (Criminal Division): In [2000] QB 744, the court dismissed the appeal. It held that the statutory deeming provision did not affect corporation tax, certified the section 739 issue as a point of law of general public importance and refused leave to appeal.

3. Trial: A jury convicted the appellant of conspiracy to cheat the public revenue. He was sentenced to 18 months’ imprisonment.