David Milne KC, Richard Vallat KC and Calypso Blaj discuss the implications of Hargreaves, in particular:
- What we can say about what is meant by "beneficial entitlement"?
- How is it different to "beneficial ownership"?
- And indeed to the trust law concept of both?
- 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 that was rescinded?
Legislation
Income Tax Act 2007 s933
Capital Allowances Act s61
Directive 2003/49
Cases
Hargreaves v HMRC [2024] EWCA Civ 365
Sainsburys v O''Connor [1991] EWCA Civ J0522-3
Parway Estates v IRC (1958) 45 TC 135
Bupa Insurance Ltd v HMRC [2014] UKUT 262 (TCC)
Indofood International Finance v JP Morgan Chase Bank [2006] STC 1195
WT Ramsay Ltd v IRC [1982] AC 300
Altrad Services v HMRC [2024] EWCA Civ 720
Hurstwood & Rosingdale [2021] UKSC 16
Wood Preservation v Prior [1969] 45 TC 112
Joined cases C-115/16, C-118/16, C-199/16 and C-299/16
Gestmin SGPS SA v Credit Suisse [2013] EWCA 3560 (Comm)
Philip Baker KC's commentary on the OECD Model Convention (2017)
Tax Journal article on Altrad in July 2024
