The Transfer of Assets Abroad (TOAA) code is a long-standing piece of anti-avoidance legislation, dating back to 1936. It applies where there is a transfer of assets to a non-UK resident or non-domiciled person (including a non-natural person), and as a result of that transfer (and/or one or more ‘associated operations’), income becomes payable to that person abroad. A tax charge arises on a UK-resident (s.721 ITA 2007) who has the power to enjoy that income or receives a capital sum (s.728). Similarly, such a tax can fall upon any UK-resident, even if not the original transferor (s.731). The tax is based on the income received by that foreign person (and also includes income within a company owned by an offshore trust). A ‘motive’ defence is available to ensure those genuine commercial transactions abroad are not caught or those not having a purpose of avoiding a liability to tax.
Recently, the nature of the transferor came under the spotlight – and at the highest levels. In the case of HMRC v. Fisher & Anor[1], the Supreme Court had to decide whether the TOAA code applies when a limited company, rather than an individual, transfers assets abroad. This long-running case concerned the transfer of a betting business in 1999/2000 from a UK company to one based in Gibraltar (i.e. the person abroad), whose individual family shareholders were assessed on the income of the new company under s.739 ICTA 1988 (now s.720 ITA 2007) and presented with discovery assessments totalling over £5million. The assessments were raised on three of the shareholders (one shareholder was non-UK resident) on the basis that the individuals were transferors by virtue of their being shareholders of the UK company which had legally transferred the business assets (i.e. that they were ‘quasi-transferors’).
The FTT held in favour of HMRC, but the UTT referred the matter to the Court of Justice of the European Union (which found that the UK and Gibraltar were the same jurisdiction for these purposes) and upheld the Fishers’ appeal. The Court of Appeal found in favour of HMRC with respect two of the shareholders (though Philips LJ dissented, finding that none of the individuals were transferors); the Fishers appealed and HMRC cross-appealed with respect to the remaining shareholder. The issues before the Supreme Court were:
- Does the individual charged to tax under old s.739 have to be the transferor of the assets? and
- Did the Fishers transfer the assets i.e. if it has to be an individual who transfers the assets, can they do so via a company of which they are a shareholder?
The answer to the first question was yes. The Fishers could only be subject to s.739 charge if they were properly regarded as transferors.
The answer to that second question was no. The Fishers were neither singly nor collectively the transferors of the business, and therefore the appeal was successful. A quasi-transferor was someone who procured a transfer – that title cannot apply to shareholders (majority or minority) of a company, even if they are directors.
Finance (No.2) Act 2024, clause 22 was subsequently introduced to reverse the effect of this decision. The provision inserts sections 720A and 727A so that the respective charges apply where the transfer is executed by a closely-held limited company where the individual is ‘involved’ in said company. A participator is deemed to be involved unless they can show otherwise and that they were not aware of the transfer nor of the resultant tax avoidance (any tax – not just income or corporation tax). This would seem rather unfair given that it is directors who run the company day-to-day and would likely make such decision; also, there is no means of apportioning liability amongst the participators and the legislation is retrospective as there is no cut off for historic transfers. This would appear to be yet another sticking plaster on the legislation making it even more complicated than it is already.
[1] [2023] UKSC 44
