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18 December 2002
Issue: 3888 / Categories:

Single transaction

Single transaction

The taxpayer was non-resident for eight years to 1987-88. While working for subsidiaries abroad he was granted options over shares in the parent company in 1983, 1984 and 1985, exercisable at their market value on the New York Stock Exchange at the time of the grant. He exercised the options and was assessed to capital gains tax on the gains. He was assessed on the basis that the base value for capital gains tax purposes was the sum of the price paid for the shares on exercise of the options and the market value of the options when originally granted, which was treated as nil.

The taxpayer argued that the acquisition of the option and the acquisition of the shares was a single transaction to be treated as acquired for their market value, and that as he had disposed of the option shares on the same day as he acquired them, there was no assessable gain. The Special Commissioner ruled that what is now section 17(1)(b), Taxation of Chargeable Gains Act 1992 applied (market value rule: consideration for employment services), and found for the taxpayer, so the Revenue appealed.

The High Court dismissed the appeal, so the Revenue appealed.

The Court of Appeal ruled that where what is now section 144(2) and (3) applied, the only relevant asset in relation to which the acquisition or disposal of which section 17(1) could have any application was the underlying asset. In determining whether section 17(1) did apply, the question was whether that asset had been disposed of or acquired other than by way of a bargain made at arm's length.

In the instant case, the taxpayer had acquired each tranche of shares as a single transaction comprising both the acquisition of the option and its exercise. The acquisition of the shares was by virtue of the taxpayer's employment and otherwise than by way of a bargain made at arm's length. Therefore, there was no taxable gain.

The appeal would be dismissed.

(Mansworth v Jelley, Court of Appeal, 12 December 2002.)


Not a trivial matter

Vicky Construction applied to renew its subcontractor's tax certificate under section 561, Taxes Act 1988. The Inspector turned down the application on the ground that the company had been late in paying its pay-as-you-earn liabilities in the past. On appeal, the General Commissioners agreed with the company that the lateness was of a minor and technical nature, and that all relevant payments were up to date. They allowed the appeal, so the Inspector appealed to the High Court.

Mr Justice Ferris said that the company's non-compliance had not been minor and technical, and could lead to doubt over the company's reliability to comply in the future. The company's claim that its human rights were breached was dismissed by the judge on the ground that the refusal to renew a certificate was not an interference with property or possessions. The Inspector treated the company in the same way as other similar companies, so no relevant discrimination could be established.

Accordingly the Inspector's appeal was allowed.

(Vicky Construction Ltd v Shaw, Chancery Division, 6 December 2002.)


Hoverspeed appeal

Three individuals in a borrowed car went on a day trip to France and brought back alcohol, tobacco and cigarettes in excess of the amounts mentioned in Article 9 of Council Directive 92/12 and the Excise Duties (Personal Reliefs) Order SI 1992 No 3155. On their return to Dover, Customs officers searched the car and seized the goods and the car. On a claim to judicial review, the High Court held that the Order was incompatible with the 1992 Directive and also with Article 28 of the European Community Treaty, which states that 'quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States'. The decision to seize the goods and car was therefore quashed.

Customs appealed against this decision.

The Court of Appeal held that Customs officers should have 'reasonable grounds to suspect' in order to justify any check made under sections 163(1) and 163A of the Customs and Excise Management Act 1979 (which grant powers to search vehicles, vessels and articles). The fact that having carried out a search and found excessive quantities of goods did not infer that they must have therefore had such reasonable grounds, but reasonable grounds could arise from 'profiles' or 'trends'.

However, the fact that the search was invalid did not automatically mean that the seizure of the goods and the car was also invalid and the High Court's decision to quash these seizures was set aside.

Finally, the court ruled that any claims under Community Law or the European Convention on Human Rights in this case would be remitted back to the High Court for further consideration.

(R (on the application of Hoverspeed Limited and Others) v Commissioners of Customs and Excise, Court of Appeal, 10 December 2002.)


Too late to tax

The taxpayer was liable to income tax on the value of a house. As a result of advice received, he included £100,000 as the value on his self assessment tax return. The Inspector acknowledged that the return had been processed without any need for correction.

Later, the Inspector decided that the true value of the house was higher than £100,000 and, after negotiation, a value of £145,000 was agreed. The taxpayer was assessed to tax on the additional £45,000. The taxpayer appealed to the General Commissioners, on the ground that the Inspector had no power to make a discovery assessment under section 29, Taxes Management Act 1970.

The Commissioners found for the taxpayer, so the Inspector appealed, saying that he could rely on section 29(5).

Mr Justice Park said that the statutory test in relation to section 29(5) was what information the Inspector could not reasonably be expected to have known or found out from the tax return. Thus in the instant case, the Inspector could reasonably have been expected to be aware that the largest item in the return was the transfer of the house to the taxpayer for no consideration, and that the £100,000 had been entered on the basis that it was the market value of the house. It would have been reasonable for the Inspector to refer to the district valuer when the return was received, rather than wait, to discover that the value was not enough.

The Revenue's appeal was dismissed.

(Veltema v Langham, Chancery Division, 10 December 2002.)


Winding up proceeds

Anglo German Breweries Ltd operated an excise warehouse and carried on in business as a bonded warehouseman, mostly trading with other bonded warehouses in the European Community on a duty-suspended basis. Customs assessed the company to excise duty and VAT on consignments of alcohol owned by the company. The next day, Customs presented a winding-up order in respect of the duty and VAT, and appointed a provisional liquidator.

The company appealed to the VAT tribunal.

Mr Justice Lawrence Collins said that the debt became due on assessment, and the mere lodging of an appeal could not suspend it, since the tribunal could be seised with a hardship application after the appeal had been lodged. The natural meaning of section 73(9), VAT Act 1994 and section 12(3), Finance Act 1994, was that the debt was due, until the tribunal decided otherwise.

Customs were creditors, the company was insolvent, and the court would make a winding-up order. Customs' appeal succeeded.

(Commissioners of Customs and Excise v Anglo German Breweries Ltd, Chancery Division, 29 November 2002.)


Parking facility

4 Hire Ltd took an assignment of a lease of a site from S Ltd which had ceased trading. S Ltd had operated a car hire and parking business. 4 Hire operated a car rental franchise, and continued to operate a contract parking business from the site. Later, 4 Hire entered into an agreement with a partnership, so that the partnership would run a pay and display parking business from the site. 4 Hire assigned the residue of the lease to Venuebest Ltd, and a fresh agreement was entered into between Venuebest and the partnership. This provided that the landlord transferred 'all the premises known as the yard'.

Customs decided that the taxpayer's supply of the land was standard rated under item 1(h) of group 1 of Schedule 9 to the VAT Act 1994 (grant of vehicle parking facilities).

The taxpayer appealed. The tribunal ruled that Venuebest provided to the partnership a supply of land from which the partnership provided parking facilities. This amounted to an exempt supply of land. Customs therefore appealed.

Sir Andrew Morritt Vice Chancellor said that the issue before the tribunal was whether a grant of facilities for parking had been made. The tribunal had taken the wrong matters into consideration in that it had not considered the use of the land in question. The evidence showed that the land had been used for parking for years, and by implication had therefore been let for parking facilities. It was the grant of facilities that was crucial, not the persons using those facilities. Thus the tribunal had reached the wrong conclusion.

Customs' appeal succeeded.

(Commissioners of Customs and Excise v Venuebest Ltd, Chancery Division, 5 December 2002.)

Issue: 3888 / Categories:
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