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Gaines-Cooper begins judicial review hearing

01 July 2009
Issue: 4213 / Categories: News , Residence & domicile
HMRC failed to apply IR20 tests, appeal court told

The long-running saga of Robert Gaines-Cooper has reached the Court of Appeal.

New readers may not want to start here – but to explain briefly, Mr Gaines-Cooper was previously found by the Special Commissioners to be both UK resident and domiciled. The appeal against the decision on domicile was rejected by the High Court, and leave to appeal to the Court of Appeal refused.

The issue of residence, however, is being pursued by judicial review, and it has been heard with the case of Davies & anor in the Court of Appeal.

The issue at stake in both is the same: did HMRC fail to apply the tests as set out in their IR20 booklet and in doing so frustrate the legitimate expectations of the taxpayers?

Hearing of the case began yesterday (30 June), and Taxation was there to report it. As always, it was fascinating to hear the comments and questions of the judges in a case such as this.

The case was heard before Lord Justices Ward, Moses and Dyson. Mr David Goldberg QC led the case for Messrs Davies and James, while Mr David Milne QC led for Mr Gaines-Cooper, and Miss Simmler QC led for HMRC.

Mr Goldberg began proceedings by summarising his case as relying on three flaws in the Revenue’s determination of the matter - although the argument focussed on two inaccuracies.

The first was that in paragraph 2.2 of IR20 – which requires the taxpayer to have been absent for ‘a’ full tax year for full-time employment – HMRC were claiming that the year had to be the tax year under appeal. In this case, it was 2001-02.

While Mr Goldberg’s clients had been out of the UK for the year, there was some dispute as to whether the full-time employment had started by the beginning of the year. They had, however, been employed full-time in subsequent years.

The second flaw was that in paragraphs 2.7–2.9 of IR20 – looking at whether a taxpayer had left the UK ‘permanently or indefinitely’ – the Revenue was putting a great emphasis on the meaning of ‘left’. The department was construing the word in terms of its meaning for residence as established by the case law, rather than the plain meaning that it seemed to have in IR20 of no longer being present in the UK.

The judges were keen to discuss precisely what the applicants needed to establish to merit judicial review.

Responding to a concern from Dyson LJ that there was little guidance in the skeleton argument on which parts of the correspondence were to be relied on, Moses LJ said that the unfairness would have to be more than just a succession of small points: it would have to be something that ‘leapt out from the page’.

In discussion with Mr Goldberg, Moses LJ concluded that the test to be met was whether it would be ‘unfair’ for HMRC to adopt an interpretation other than that argued for by the taxpayers.

Mr Goldberg faced some close questioning from the judges when arguing his first flaw. To his contention that the correspondence showed the Revenue dodging the argument, Dyson LJ replied that department was ‘simply disagreeing with you’.

Moses LJ thought that HMRC were picking up one point after another, which they were entitled to do.

Dyson LJ concluded that if HMRC’s argument was untenable then he could follow it, but if the argument was not then he did not see where the matter led.

When discussion turned to ‘leaving’ the UK and paras 2.7-2.9 of IR20, Moses LJ was initially concerned to understand the interaction with para 1.4, which states that someone may be resident in two jurisdictions.

Mr Goldberg said that it could not apply unless the taxpayer had been found resident under another paragraph. Later, Mr Milne said that the point of para 1.4 was that merely proving that the taxpayer was resident in another jurisdiction did not make him non-resident in the UK.

The later correspondence with HMRC on paras 2.7–2.9 attracted close scrutiny by the judges. Dyson LJ pointed out one paragraph in which the Revenue claimed that the purpose of the guidance was misconstrued by the taxpayer’s adviser, and that the taxman was not bound to follow it.

‘That is your best paragraph, surely?’ the judge asked Mr Goldberg, who replied that he had a far better, jaw-dropping, one for later.

The barrister came to this para shortly afterwards: HMRC had claimed that a detailed discussion of the meaning of paragraphs 2.7-2.9 could obscure the issue, and that it was more appropriate to consider the question of whether the taxpayer had ‘left’ in the context of the general law on residence, even though this might mean that some of the guidance in IR20 then had very little meaning.

Ward LJ, having established from Mr Goldberg that this was the ‘jaw-dropping’ moment, duly dropped his jaw. He then summed up the fallacy being argued for by Mr Goldberg: HMRC were claiming that the general law of residence should be used to see if the taxpayer had ‘left’, but that this then precluded the application of para 2.9.

One issue that was returned to several times was the level of correlation between IR20 and the law as established by the cases.

Moses LJ was concerned at suggestions that IR20 was not consistent with the general law of residence. Mr Goldberg retorted that the booklet provided ‘bright-line’ rules that, although derived from the case law, were not clearly established within them.

At one point, Mr Goldberg said that he did not know whether his clients were non-resident under the general case law – but he thought there was a good argument that they were.

His point was that his clients met the conditions of IR20 and so had a legitimate expectation that it would be applied. The problem was that HMRC had made their determination that Messrs Davies and James were resident based on factors that were part of case law but were not within IR20.

Mr Milne only had time to lay out an outline of his case, which was that Mr Gaines-Cooper – on the basis of facts found in the domicile part of the case before the Special Commissioners – had clearly established non-residence during the period from 1976-1980 – and as he had followed IR20 ever since, he should not be considered to have lost it.

The barrister did, however, comment on one difference between the two cases: Mr Gaines-Cooper had appealed to the Special Commissioners and lost before his judicial review case, whereas Mr Davies had successfully argued that he should not have to do so.

The hearing continues. It is set for three days; if it takes the full allotted time, Taxation hopes to return for the final day.

Issue: 4213 / Categories: News , Residence & domicile
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