Wire Supplies Ltd v Commissioner of Inland Revenue

The Court of Appeal dismissed appeals from three High Court judgments relating to the assessment of tax by the Commissioner of Inland Revenue for tax avoidance. The appellants were participants in a tax avoidance scheme devised by Mr J G Russell, known as the Russell template. The tax avoidance scheme involved the shareholders of trading companies selling their shares to a company controlled by Mr Russell, who was a tax agent. The shareholders then entered into management contracts with the new parent company and the trading company. The parent company paid the shareholders an administration charge, which was income in the hands of the parent company but group relief under s 191 was relied upon to avoid tax. The proportion of the administration charge that was a fee payable to Mr Russell for the use of the scheme was calculated by reference to the amount of tax saved. In addition, the company paid a consultancy fee representing five per cent of the administration charge to another Russell company. The Commissioner assessed the shareholders for income tax under s 99 of the Income Tax Act 1976. The shareholders appealed to the High Court, which dismissed their appeals. The shareholders appealed to the Court of Appeal. The Court of Appeal found that the assessments were valid and dismissed the appeals. The Court of Appeal held that the shareholders had obtained a tax advantage from the arrangement, and that the Commissioner was entitled to assess the shareholders under Track B. The Court of Appeal held that the Commissioner was not acting arbitrarily or in abuse of his power in determining to assess the shareholders under Track B. The Court of Appeal held that the Commissioner was entitled to make Track B assessments, notwithstanding the existence of Track A assessments. The Court of Appeal held that the Commissioner was entitled to alter an assessment in a way which increased the amount of tax payable by a taxpayer after the expiration of four years from the end of the year in which the notice of the original assessment was issued. The Court of Appeal held that there was no right of objection in respect of additional tax. The Court of Appeal held that the Commissioner was not required to set prospective dates for payment of tax. The Court of Appeal held that the Commissioner was entitled to assess the shareholders for consulting fees. The Court of Appeal held that the Taxation Review Authority had not acted in breach of the rules of natural justice when determining the objections to the shareholders' assessments without having heard evidence from the Inland Revenue Department officer principally responsible for the Commissioner's decision to issue Track C assessments. The Court of Appeal held that the Commissioner was entitled to make Track C assessments. The Court of Appeal held that the Commissioner was not required to amend the shareholders' assessments to remove any inconsistency with the Track C assessments. The Court of Appeal held that the Commissioner was entitled to assess the shareholders for funding charges. The Court of Appeal held that the Commissioner was entitled to apportion the administration charge between the shareholders in accordance with the legal entitlements of the former shareholders. The Court of Appeal held that the executrix of the estate of a deceased shareholder had effectively filed a notice of discontinuance of the deceased shareholder's objection. The Court of Appeal held that the Commissioner had not waived privilege in relation to opinions prepared by internal Inland Revenue Department solicitors. The Court of Appeal held that the Commissioner was entitled to costs in relation to all appeals.