A recent case was heard at the First-Tier Tribunal regarding the conflict between commercial decisions and tax avoidance motives (A Fisher, S Fisher, P Fisher v HMRC). It can clearly be seen that legally reducing a tax liability could be a commercially sensible decision, but it was previously assumed that this would not be enough to override the anti-avoidance provisions that apply where there is a tax avoidance motive.
The case in question involved a family bookmaking business, who took the decision to move the business to Gibraltar in the 1999/2000 take year, in order to obtain more favourable treatment regarding betting duties than applied in the UK.
HMRC took issue with this and challenged the, under the anti-avoidance provisions on the transfer of assets abroad. They raised assessments charging income tax the years 2000/01 to 2007/08 under the rules in force during those years.
The taxpayers appealed claiming that there was no avoidance as they had moved the business to Gibraltar as a commercial decision in order to compete with other bookmakers. Saving tax was therefore a side effect and not the reason for relocating.
The First-tier Tribunal did not agree, finding that the transfer would not have gone ahead if it were not for the lower betting duty in Gibraltar. This did not conflict with the decision to move being made for sound commercial reasons, however this did not prevent there being a tax avoidance motive.
The taxpayers made a further argument regarding the EU rights of freedom of establishment and freedom of movement of capital applied, but the tribunal determined that the rules were not relevant for movements between the UK and Gibraltar. They did, however, apply to one family member who was an Irish national.
The taxpayers also made a claim that HMRC’s assessments were not valid, under the discovery provisions in TMA 1970, s 29, as the tax officer should have been aware of the relevant information as a result of responses to their enquiries. The tribunal agreed that the conditions for making a discovery assessment were not satisfied for 2005/06 and 2006/07. The appeals for the remaining years were dismissed.
Whilst the Tribunal confirmed that a tax avoidance motive could also be part of a commercial decision, it is clear that the anti-avoidance provisions are drafted widely enough to catch such situations. This is because the existence of commercial reasoning does not overrule the fact that there was a tax avoidance motive as well which was inextricably linked.