Afzal Alimahomed v The Commissioners for HMRC
[2024] UKFTT 432 (TC)
The Commissioners for HMRC v Raj Sehgal & Anor
25 March 2024
[2024] UKUT 74 (TCC)
Upper Tribunal
Two people sold a UK company and owed money from a related company. To avoid paying taxes in the UK, they did a complicated overseas money swap. The taxman tried to say they still had to pay UK tax, but the court ruled they didn't because the clever money swap didn't actually bring any profit back to the UK.
Key Facts
- •Two UK-resident, non-domiciled individuals (Respondents/Taxpayers) sold shares in a UK company (VGL).
- •A debt existed between a company indirectly owned by the Taxpayers (IR) and a VGL subsidiary (Visage).
- •The sale agreement included an indemnity clause obligating the Taxpayers to cover IR's debt to Visage.
- •To avoid accounting complications, a complex offshore transaction occurred involving payments between several offshore companies, ultimately releasing the Taxpayers from their indemnity obligation.
- •HMRC issued closure notices assessing liabilities of £606,480 each on the Taxpayers under the remittance basis for foreign gains (s 809L ITA 2007).
Legal Principles
Remittance basis for foreign gains (s 809L ITA 2007): Defines when foreign income or gains are considered 'remitted to the UK', triggering UK tax liability.
Income Tax Act 2007, s 809L
Condition A (s 809L(2)): Requires money or property brought to, received, or used in the UK, or a service provided in the UK, for the benefit of a relevant person.
Income Tax Act 2007, s 809L(2)
Condition B (s 809L(3)): Requires a connection between the property, service, or consideration and the foreign income or gains. Various scenarios are outlined, including the use of gains outside the UK to settle a relevant debt.
Income Tax Act 2007, s 809L(3)
'Property' in s 809L(2)(a) should not be interpreted too narrowly, considering the overall purpose of the remittance basis legislation.
Grounds of appeal 9.1, 29, 40
'Service' in s 809L(2)(b) requires a commercial activity normally provided for remuneration. The location of the service's provision is determined by where it is performed, not where the benefit is received.
Discussion [63]-[81], 53, 67, 72
A 'relevant debt' (s 809L(7)) must relate to the property or service under Condition A. The pre-existing debt cannot relate to the later service of waiving that debt.
Grounds of appeal 9.3, 48-51, 84-88
Outcomes
HMRC's appeal was dismissed.
The Upper Tribunal (UT) found that the FTT correctly concluded that Condition B of s 809L was not satisfied. The UT agreed with the FTT's finding that the offshore transactions did not constitute a remittance of gains to the UK. The UT disagreed with the FTT's finding regarding a service being provided in the UK but found that this didn't change the final outcome.
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