Jeremy Woolf and Barbara Belgrano look at how Brexit affects the UK tax position and consider some of the issues which will be ongoing, at least in the near future.

(3:08) Where we are today: you have to consider which period your case falls within. There are three periods to consider: (1) 2018 up to IP Completion Day being 31st December 2020 (2) 1 January 2021 - 31st December 2023 (3) 1st January 2024 onwards.

The first period: up to IP Completion Day on 31st December 2020

• (4:42) The UK still a member of the EU but subject to the 2018 Act which purport to have retroactive effect. Article 89 of the Withdrawal Agreement (endorsed by HMRC v Perfect) make ECJ decisions relating to litigation commenced before Brexit or during the first period binding. ECJ decisions post Brexit only persuasive. See Lipton and The Umbrella Interchange.
• (7:04) Effect of section 2 2018 Act - saves EU-derived domestic law before IP Completion Day subject to Section 5 (supremacy) and Schedule 1 (Francovich damages).
• (8:56) Schedules 1 and 8 2018 Act - transitional provisions. To what extent, post Brexit, can you rely on general principles of EU law? Allianz Global v Barclays.
• (12:01) Section 3 of the 2018 Act (incorporation of direct EU legislation) which is subject to Section 5 and Schedule 1.
• (13:06) Section 4 of the 2018 Act (the saving of rights under section 2 ECA). Wide rule important in direct tax field (eg transfer of assets code). Effect in tax law of The Freedom of Establishment and Free Movement of Services EU Exit Regulations 2019. Effect of EU Directives and CG Fry & Son Ltd. Purposive interpretation dealt with in section 6. Harris v Environment Agency.

The second period: 1st January 2021 - 31st December 2023

• (19:49) Section 6 of the 2018 Act (extent to which UK courts bound by ECJ judgments). HMRC v Perfect, Lipton and The Umbrella Interchange cases.

The third period: post 1st January 2024

• (22:18) RULA now takes effect. It is not retrospective and only covers disputes that relate to the period post January 2024.
• (23:53) Section 2 of RULA repeals section 4 of the 2018 Act. Section 3 of RULA abolishes the supremacy of EU law. Will therefore be very difficult to rely on EU law in the direct tax arena (even in Transfer of Assets Code) post 1st January 2024.
• (25:54) VAT and excise duties in a different position due to section 28 Finance Act.
• (27:10) Section 6 of RULA is not yet in force. Amended test as regards looking at earlier cases. VAT most likely to be affected.

EU law remains very relevant up to 1st January 2024, despite Brexit. And EU law remains relevant going forward in the VAT context. After 1st January 2024 EU law may still have an impact on the construction of UK law.

Citations

Legislation

• Retained EU Law Revocation & Reform Act 2023 ("RULA")
• European Union (Withdrawal) Act 2018 (the "2018 Act")
• Article 89 Withdrawal Agreement
• The European Communities Act 1972
• The Freedom of Establishment and Free Movement of Services EU Exit Regulations 2019
• Section 28 Finance Act 2024

Transfer of Assets Code

Cases

• HMRC v Perfect [2022] EWCA Civ 330
• Lipton v BA Cityflyer Ltd [2024] UKSC 24, 3 WLR...

David Milne KC, Richard Vallat KC and Calypso Blaj discuss the implications of Hargreaves, in particular:

1. What we can say about what is meant by "beneficial entitlement"?
2. How is it different to "beneficial ownership"?
3. And indeed to the trust law concept of both?
4. Is there a different international fiscal meaning of beneficial entitlement?

The panel look at where these issues may come up in practice. How definitive is the Hargreaves case? They also take a look at Altrad Services and the loss of beneficial ownership.

Discussion of Hargreaves

2:38 Whether interest payments made to a UK resident company fell within an exception to the obligation to withhold tax on payments of interest under ITA. This depends on whether the recipient is beneficially entitled to the income. The CA reviewed the case law (para 49ff of the judgment). It then applied the principles to the facts (para 61ff).

8:10 It is important that the provisions put in place were specifically to obtain a tax advantage (which was admitted). The question was whether the tax planning worked. The recipient of the interest payments was under a contractual obligation to pay on the money it received so was it the beneficial owner therefore? The judgment gives guidance as to the domestic meaning of beneficial entitlement.

11:39 What of the rival definition of "beneficially entitled", also known as the international or fiscal meaning? Should this be adopted in a withholding tax situation? Discussion of Indofood and the ECJ cases in 2019. The international, fiscal meaning has to take into account the objects and purposes of the Convention including avoiding double taxation. This differs from the domestic law requirements per Ramsay of whether the concept fits within the statutory purpose and context of the provisions.

17:05 Conduit arrangements (insertion of a company) caught under either definition. However, theoretically there may be other cases where you are treated as being beneficially entitled under say the international, fiscal meaning but not under the domestic meaning.

18:35 The domestic meaning should not be dependent on finding a tax avoidance motive.

Losing beneficial ownership

20:00 Altrad Services/Wiseman. Turned on "ceasing to own" in s61 Capital Allowance Act. Marketed tax avoidance scheme. Application of Ramsay purposive principle. See Tax Journal article on Altrad in July 2024. Case quite an extreme example so there might be other cases which are less clear cut.

28:07 NB there does not have to be someone who has beneficial ownership.

Areas where beneficial ownership comes up

28:47 Withholding tax on interest payments, double tax treaties (dividends and royalties), domestic group relief provisions (eg CGT, substantial shareholding exemption, SDLT).

Other comments

30:52 What if the conduit company in Hargreaves had actually used some/all of the money even for a short period? Or had another reason for existing other than being a conduit?

31:54 What if in Altrad, the complex arrangements designed to take advantage of capital allowances had actually been subject to a contract...

In this episode, Elizabeth Wilson KC and Ronan Magee take a look at the "unallowable purpose rule" in the loan relationship code and in particular three recent Court of Appeal cases – Kwik-Fit (in which Elizabeth Wilson KC and Ronan Magee acted), BlackRock and JTI Acquisitions (in which Elizabeth Wilson KC acted).

• (2:28) outline of the unallowable purpose rule. It involves a multi-layered test.
• (4:45) a key element is what, as a matter of fact, is the group's purpose in organising the borrowing. You decide this by looking at all the facts therefore. Discussion of this in relation to the JTI Acquisitions case, Kwik-Fit and BlackRock.
• (9:48) companies have been trying to narrow what the courts can consider when applying the test. The Court of Appeal has clearly shown this cannot be done.
• (11:52) JTI Acquisitions underlines that a company must prove its case on all the facts. It cannot be selective.
• (13:50) Do you need to be coming to the UK for other reasons, not just tax reasons, in order to benefit from the rule?
• (16:00) Syngenta: there must be proper evidence and not window dressing/assertions. What role do documents and witness evidence have in establishing facts? Importance of getting all your evidence (documentary and witness) before the tribunal.
• (22:45) Kwik-Fit: genuine commercial losses in one part of the group which they sought to set against profits in other parts of the group. The disallowed losses were, however, capped which shows the attribution rule in its safeguarding role.
• (29:01) new loan relationship code anti-avoidance provision ss445B - D.
• (30:47) some questions are not yet answered (eg attribution).

Cases/legislation

Cases

Kwik-Fit [2024] EWCA Civ 434

Blackrock [2024] EWCA Civ 330

JTI Acquisitions [2024] EWCA Civ 652

Fidex [2016] EWCA Civ 385

Travel Documents Service [2018] EWCA Civ 549

Syngenta [2024] UKFTT 998 (TC)

Gestmin [2013] EWHC 3560 (Comm)

Kogan v Martin [2019] EWCA Civ 1645

Euromoney [2022] UKUT 205 (TCC)

Legislation

ss441 and 442 Corporation Tax Act 2009

s1139 Corporation Tax Act 2010

ss445B - D Corporation Tax Act 2009