INTM602980 - Transfer of assets abroad: Exemptions from charge: Avoidance purpose exemption - avoiding liability to taxation

The test of purpose that must be applied is that of purpose of avoiding liability to taxation. In other words, from all the circumstances of the case, is there reason to think that the idea or aim or end desired of the transactions was avoiding liability to taxation (or, in the case of Condition A, is there evidence that was one of the purposes)?

In the pre-December 2005 test, the individual effectively must prove the negative: that the purpose was not avoiding liability to taxation. In the post-December 2005 test, the individual must prove that it would not be reasonable to draw the conclusion that avoiding liability to taxation was a purpose of the transactions.

The expression 바카라 사이트˜avoiding liability바카라 사이트™ was introduced into this legislation when it was first enacted in 1936 and has remained since. The phrase is often changed to 바카라 사이트˜tax avoidance바카라 사이트™, but this is not an entirely satisfactory way to approach it; that phrase often brings with it implied reference to formal schemes or arrangements designed specifically as 바카라 사이트˜tax avoidance바카라 사이트™ schemes whose aim is perhaps that the particular tax should be avoided altogether.

Whereas, in relation to transfer of assets, the view has been taken that even a deferral of liability can constitute the avoiding of liability to tax: see CIR v Willoughby (70 TC 57). The General Anti-Abuse Rule introduced by the Finance Act of 2013 defines 바카라 사이트˜tax advantage바카라 사이트™ and this includes deferral of tax.

There is no requirement that the transactions to be considered for the purpose test must be part of a formal 바카라 사이트˜tax avoidance바카라 사이트™ scheme or arrangement before the test is not met.

Yet it was the expression 바카라 사이트˜tax avoidance바카라 사이트™ that was considered in the context of the application of the exemption test in the Willoughby case referred to above. A case in which the Crown sought to distinguish tax avoidance from tax mitigation.

In that case the Crown sought to distinguish between two types of a particular investment form, personal portfolio bonds: one which was said to qualify for the exemption and one which it was argued did not. And in seeking to make that distinction, it was necessary to understand what was meant by 바카라 사이트˜tax avoidance바카라 사이트™ and to distinguish that from tax mitigation.

Having summarised what he considered to be the arguments for the Crown in this connection Lord Nolan, in the House of Lords judgement, comments,

But it would be absurd in the context of s741 [ICTA 1988] to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of S741 [ICTA 1988] is a course of action designed to conflict with or defeat the evident intention of Parliament. In saying this I am attempting to summarise, I hope accurately, the essence of [the Crown바카라 사이트™s] submissions, which I accept. [CIR v Willoughby (70 TC 57) at page 116/117].

Lord Nolan then continued to examine further the arguments for the Crown but came to the conclusion that the Special Commissioner had applied the appropriate tests in finding from the facts that the purpose test was met by the appellant in relation to the particular transactions: a view already upheld in the Court of Appeal.

For the purpose test, HMRC accepts that tax mitigation encompasses cases in which advantage is taken, in the way Parliament intended, of specific taxing regimes or 바카라 사이트˜offers of freedom from tax바카라 사이트™ such as, for example, investments in ISAs and straightforward personal portfolio bonds. Similarly, a straightforward personal investment in an offshore fund is unlikely to be regarded as avoidance, assuming the specific taxing regime applicable to offshore funds applies and there are no special features. But if the arrangements are part of an offshore trust/corporate structure, then the purpose of all the relevant transactions would need to be considered.

However, it is not possible to issue a blanket assurance that particular types of transaction will automatically qualify for exemption. It might happen that a seemingly 바카라 사이트˜innocent바카라 사이트™ investment product is used in a way not intended by Parliament as part of a wider scheme of avoidance. Each case must be considered on its own facts.