Westwater Advocate Iain Artis in another tax success


Aberdeen Asset Management plc v HMRC [2013] CSIH 84

The Inner House have restored the judgment of the First-tier Tribunal in this case, in which Iain Artis was successful for HMRC in the FTT and appeared as junior to Julian Ghosh QC in the Upper Tribunal and Inner House.

The case involved a tax avoidance scheme whereby substantial annual bonuses were paid by AAM to directors and senior employees, via an offshore employee benefits trust, by way of shares in offshore companies which had been first primed by money in the amount of the bonuses. Before the shares were given to their recipients, however, the offshore companies had granted options to family trusts established for the recipients, entitling the trustees to be granted controlling interests over the companies, and it was argued that this reduced the value of the shares in the bonus recipients’ hands to nominal sums. In the FTT this argument failed; the scheme failed as an avoidance scheme. Tax was payable on the bonus amounts. That was not appealed. Neither was the decision that AAM was liable to pay National Insurance contributions on the bonuses.

What was appealed, however, was the FTT decision that AAM as the employer was liable to pay the tax under PAYE. It was argued for AAM that PAYE was not accountable on the transfer of shares, but only on money payments save where provided in the legislation, and that the relevant legislation (then s. 203(1) and 203F of the Income and Corporation Taxes Act 1988) did not apply because the shares were not “readily convertible assets”. Applying a Ramsay approach (WT Ramsay Ltd v IRC, [1982] AC 300; 54 TC 101; [1981] S TC 174, as explained in  Barclays Mercantile Business Finance Ltd v Mawson, [2005] S TC 1; [2004] UK HL 51), HMRC argued that the shares, regarded realistically, were the equivalent of money for the purposes of the PAYE provisions, construed purposively, but if they were not they were readily convertible assets. HMRC had succeeded on both fronts before the FTT but had lost the first in the UT. Before the Inner House AAM appealed on the readily convertible asset issue, and HMRC cross-appealed on the “as good as cash” issue.  The Inner House allowed the cross-appeal and dismissed AAM’s appeal.

The legislation has changed since, but the case remains of general interest for the breadth of application of the Ramsay approach, in particular being applied to assist in the characterisation of the shares as the equivalent of cash even though the transaction comprised by the tax avoidance scheme had effectively ended with the transfer of the shares. The employees had varied in their use of the offshore companies, and some had left the cash in their companies to be used for investments by the companies: this was not a scheme whereby the employer controlled the eventual outcome. Nor was it circular or self-cancelling. None of that mattered: the shares in the “cash-box companies” were realistically as good as cash.