Shiner & Anor, R (on the application of) v Revenue & Customs

Article 56 of the EC Treaty is not engaged merely because a United Kingdom resident transfers money into an Isle of Man interest-in-possession trust. The transfer must be a relevant movement of capital. A trust which is separate from a partnership does not become an investment in that partnership simply because its trustee is a partner or receives partnership profits for onward payment to the beneficiary.

A judicial review court should decide the lawfulness of the public authority’s acts on the claimant’s facts. It should not determine hypothetical questions about the wider scope of European Union law, nor seek a preliminary ruling, where the claim can be resolved without them.

The claimants, United Kingdom-resident directors of building companies, participated in an Isle of Man tax-avoidance arrangement. Each settled £10 on an Isle of Man interest-in-possession trust. The trustees later became partners in a Manx land-development partnership, whose profits were paid to the trusts and then to the claimants.

The claimants sought double-taxation relief for the income. They challenged the retrospective application of section 58 of the Finance Act 2008, contending that it restricted the free movement of capital under Article 56 of the EC Treaty and infringed Convention rights. Although sitting in the Court of Appeal, the court heard the judicial review claim at first instance following permission granted by a different constitution. The central issue was whether the £10 transfers engaged Article 56.

1. The application for judicial review was dismissed unanimously. Lord Justice Mummery gave the judgment, with which Sullivan and Tomlinson LJJ agreed.

2. The £10 payments into the Isle of Man trusts were not a relevant movement of capital within Article 56. They were payments to trusts created by the claimants, in which they held life interests. The trusts and the later Manx partnership were distinct legal arrangements. The payments did not fund the partnership, and no evidence showed that either trust was created or funded in order to invest in it.

3. The fact that the trustees were members of the partnership, used the claimants’ services, or received partnership profits for payment to the beneficiaries could not convert the earlier trust payments into a movement of capital for Article 56 purposes. Section 58 of the Finance Act 2008 addressed entitlement to partnership income, not transfers of capital into trusts.

4. Since Article 56 was not engaged on the facts, it was neither necessary nor appropriate to decide whether the Isle of Man was a third country, whether section 58 imposed a restriction, whether any restriction was justified, or whether the arrangement involved an abuse of EU rights. The court also refused a reference to the Court of Justice because no ruling on Article 56 was necessary to decide the claim.

5. Independently, and for the reasons given in R (Huitson) v HMRC [2011] QB 174, the retrospective provisions were proportionate and compatible with Article 1 of the First Protocol to the Convention.

• Court of Appeal (Civil Division): Heard the substantive judicial review application at first instance, following permission granted by a differently constituted Court of Appeal. The application was dismissed.
• Permission stage: Stanley Burnton LJ initially refused permission on the Article 56 ground on 3 June 2009 and stayed the Convention ground pending the related Huitson proceedings. He later granted permission on Convention grounds. On 26 May 2010, Waller, Rix and Wilson LJJ granted permission for the Article 56 claim and extended time.