In The Queen on the application of APVCO 19 and others v HMRC [2015] EWCA Civ 648 (30 June 2015), the Court of Appeal found that retrospective legislation was lawful.
The appellants had implemented aggressive tax avoidance schemes designed to avoid SDLT. The question was whether retrospective legislation (amending FA 2003 s 45(1A)) targeting those schemes violated the European Convention on Human Rights (ECHR) Protocol 1 art 1 (A1P1) (protection of property) and art 6 (right to a fair trial).
The schemes had relied on sub-sale relief, which ensures that where successive transfers of rights relating to the purchase of a property (including options) are completed by a single property transfer, SDLT is chargeable only once on the property transfer. However, FA 2013 had introduced an amendment, which had effect from 21 March 2012, that made it clear that the option arrangements entered into by the appellants had not constituted ‘transfers of rights’ and had therefore been subject to SDLT.
The first question was whether the amendments had the effect of depriving the appellant of any possession that they had at the date of the legislative changes. The Court of Appeal observed that, by the time the amendments had been made, the money that the appellants might have used to pay the tax was already the subject of an unresolved argument with HMRC. The appellants had therefore been deprived of an argument that they were not liable to pay the tax, but not of the tax itself. A1P1 was therefore not engaged; and even if A1P1 had applied, the retrospective amendments would have been lawful.
The government had published a protocol entitled Tackling tax avoidance in March 2011, which had warned about the possibility of retrospective legislation in ‘exceptional circumstances’ to avoid ‘significant losses to the exchequer’. The Court of Appeal pointed to the ‘serial abuse’ of the relevant provisions and concluded that the retrospective changes had been foreseeable and therefore lawful. Furthermore, the balance between the general interests of the community and the protection of the individual’s fundamental rights had fallen ‘heavily on the side of the public interest’, making the changes proportionate.
Finally, applying the decision of the European Court of Human Rights in Ferrazzini [2001] STC 1314, the Court of Appeal held that the dispute was not civil, so that art 6 was not engaged.
Why it matters: Since the publication of the protocol in 2011, the government has used retrospective legislation on several occasions, often provoking the anger of taxpayers. This case confirms that retrospective tax legislation can be lawful. It is therefore likely that the government will continue to use this powerful tool when the need and justification arise.
In The Queen on the application of APVCO 19 and others v HMRC [2015] EWCA Civ 648 (30 June 2015), the Court of Appeal found that retrospective legislation was lawful.
The appellants had implemented aggressive tax avoidance schemes designed to avoid SDLT. The question was whether retrospective legislation (amending FA 2003 s 45(1A)) targeting those schemes violated the European Convention on Human Rights (ECHR) Protocol 1 art 1 (A1P1) (protection of property) and art 6 (right to a fair trial).
The schemes had relied on sub-sale relief, which ensures that where successive transfers of rights relating to the purchase of a property (including options) are completed by a single property transfer, SDLT is chargeable only once on the property transfer. However, FA 2013 had introduced an amendment, which had effect from 21 March 2012, that made it clear that the option arrangements entered into by the appellants had not constituted ‘transfers of rights’ and had therefore been subject to SDLT.
The first question was whether the amendments had the effect of depriving the appellant of any possession that they had at the date of the legislative changes. The Court of Appeal observed that, by the time the amendments had been made, the money that the appellants might have used to pay the tax was already the subject of an unresolved argument with HMRC. The appellants had therefore been deprived of an argument that they were not liable to pay the tax, but not of the tax itself. A1P1 was therefore not engaged; and even if A1P1 had applied, the retrospective amendments would have been lawful.
The government had published a protocol entitled Tackling tax avoidance in March 2011, which had warned about the possibility of retrospective legislation in ‘exceptional circumstances’ to avoid ‘significant losses to the exchequer’. The Court of Appeal pointed to the ‘serial abuse’ of the relevant provisions and concluded that the retrospective changes had been foreseeable and therefore lawful. Furthermore, the balance between the general interests of the community and the protection of the individual’s fundamental rights had fallen ‘heavily on the side of the public interest’, making the changes proportionate.
Finally, applying the decision of the European Court of Human Rights in Ferrazzini [2001] STC 1314, the Court of Appeal held that the dispute was not civil, so that art 6 was not engaged.
Why it matters: Since the publication of the protocol in 2011, the government has used retrospective legislation on several occasions, often provoking the anger of taxpayers. This case confirms that retrospective tax legislation can be lawful. It is therefore likely that the government will continue to use this powerful tool when the need and justification arise.
