R v Dimsey

The central question was the construction of section 739(2) of the Income and Corporation Taxes Act 1988 (the successor to section 18 of the Finance Act 1936): whether the deeming provision that treats income of a transferee as income of the transferor for all purposes of the Income Tax Acts also requires that the same income be treated as not the income of the transferee (and therefore not subject to the transferee's normal tax liabilities). The House concluded that section 739(2) does not have that effect. The court relied on legislative history, comparisons with other deeming provisions (which expressly exclude the income from the hands of others when that was intended), and the statutory context to hold that Parliament did not intend to relieve a transferee of its ordinary liability to tax. The court also held that, construed compatibly with Convention rights under the Human Rights Act 1998, the statutory scheme was within the state's margin of appreciation under Article 1 of Protocol No. 1. Because the offshore companies were in law resident in the United Kingdom and liable to corporation tax, there was no legal impediment to the conspiracy conviction; the appeal was dismissed.

Background and facts

• The appellant, resident in Jersey, provided offshore company services and, at the direction of a UK resident (Mr Chipping), formed and administered three offshore companies (Thomlyn, Glenville and Lantau) whose profits derived from contracts. The appellant assisted in providing false and misleading information to the Inland Revenue during an investigation.
• Criminal proceedings followed. The appellant and others were tried on a single count of conspiracy to cheat the public revenue (section 1(1) Criminal Law Act 1977). The prosecution case at trial focused on depriving the revenue of corporation tax allegedly payable by the three companies because the companies were said to be resident in the United Kingdom by virtue of management and control.
• The jury convicted. On appeal to the Court of Appeal a point under section 739(2) of the Income and Corporation Taxes Act 1988 (the successor of section 18 of the Finance Act 1936) was raised for the first time: whether the deeming provision that treats transferee income as the transferor's income also operates to relieve the transferee of liability to tax on that income.

Procedural posture

The Court of Appeal rejected the section 739 argument and certified it as a point of law of general public importance ([2000] QB 744). Leave to appeal to the House of Lords was granted by an Appeal Committee. The appellant also advanced an argument under Article 1 of Protocol No. 1 to the European Convention (permitted before this House by leave, in the light of the Human Rights Act 1998).

Issues before the House

1. Whether section 739(2) should be construed so that income deemed to be the transferor's is thereby not the income of the transferee (and so the transferee is relieved of its ordinary liability to tax).
2. If not, whether leaving the transferee liable in the ordinary way is incompatible with the right to peaceful enjoyment of possessions under Article 1 of Protocol No. 1 as applied through the Human Rights Act 1998.

Reasoning

• The House examined the legislative history from the Finance Act 1936 through the Income Tax Acts (1952, 1970) to the 1988 Act and compared section 739(2) with other statutory deeming provisions that expressly include the words "and not as the income of any other person" when Parliament intended to exclude the transferee's liability. The omission of such words from section 739(2) was treated as deliberate.
• The court concluded that the proper construction confines the deeming to the transferor for the purposes specified (the Income Tax Acts) and does not automatically extinguish the transferee's separate liability (for example, corporation tax for resident companies). The court noted the existence of statutory provision (section 743(1) and predecessors) aimed at avoiding double taxation but regarded that protection as directed to the transferor's exposure and not a clear indication that transferees were to be exonerated.
• On the Human Rights point, construing the 1988 Act compatibly with Convention rights (Human Rights Act section 3), the House held that the statutory scheme, including the imposition of deemed tax liability on the transferor and the possibility that a transferee might still be liable in its own right, fell within the state's margin of appreciation in tax matters and did not breach Article 1 of Protocol No. 1.

Outcome

The House held the offshore companies were resident in the United Kingdom and liable to corporation tax, and that section 739(2) does not relieve transferees of their normal tax liabilities. The appellant's conviction was therefore not impeached by the section 739 point; the appeal was dismissed.

Appeal dismissed. The House held that section 739(2) of the Income and Corporation Taxes Act 1988, while deeming income of a transferee to be income of the transferor for purposes of the Income Tax Acts, does not by necessary implication or statutory construction relieve the transferee of its ordinary liability to tax on that income. Legislative history and comparison with other deeming provisions supported this construction, and the statute, so construed, was compatible with Article 1 of Protocol No. 1 under the Human Rights Act 1998. Because the companies were resident in the United Kingdom and liable to corporation tax, there was no legal impediment to the conspiracy conviction and the appeal was dismissed.

Convicted at trial on count 10 (conspiracy to cheat the public revenue). The Court of Appeal ([2000] QB 744) rejected the section 739 argument but certified the point as a matter of law of general public importance. Leave to appeal to the House of Lords was granted by an Appeal Committee and the appeal was heard in the House of Lords, which dismissed the appeal ([2001] UKHL 46).