UBS AG v Revenue and Customs Comrs - [2016] UKSC 13

Hilary Term

[2016] UKSC 13

On appeal from: [2014] EWCA Civ 452

JUDGMENT

UBS AG (Respondent) v Commissioners for Her Majesty’s Revenue and Customs (Appellant) DB Group Services (UK) Ltd (Respondent) v Commissioners for Her Majesty’s Revenue and Customs (Appellant)

before

Lord Neuberger, President

Lord Mance
Lord Reed
Lord Carnwath
Lord Hodge

JUDGMENT GIVEN ON

9 March 2016

Heard on 3 December 2015

Appellant Respondent (UBS AG)

Paul Lasok QC Kevin Prosser QC
Richard Vallat
Anneliese Blackwood

(Instructed by The (Instructed by Pinsent

General Counsel and Masons LLP)
Solicitor for HM Revenue
and Customs)

Respondent (DB Group

Services (UK) Ltd)

David Goy QC

Nicola Shaw QC

(Instructed by Slaughter

and May)

LORD REED: (with whom Lord Neuberger, Lord Mance, Lord Carnwath and Lord Hodge agree)
1. In our society, a great deal of intellectual effort is devoted to tax avoidance. The most sophisticated attempts of the Houdini taxpayer to escape from the manacles of tax (to borrow a phrase from the judgment of Templeman LJ in W T Ramsay Ltd v Inland Revenue Comrs [1979] 1 WLR 974, 979) generally take the form described in Barclays Mercantile Business Finance Ltd v Mawson [2004] UKHL 51; [2005] 1 AC 684, para 34:
“... structuring transactions in a form which will have the same
or nearly the same economic effect as a taxable transaction but which it is hoped will fall outside the terms of the taxing statute. It is characteristic of these composite transactions that they will include elements which have been inserted without any business or commercial purpose but are intended to have the effect of removing the transaction from the scope of the
charge.”

2. The present appeals are concerned with composite transactions of this nature,

designed to avoid the payment of income tax on bankers’ bonuses. They are among
a number of cases concerning broadly similar schemes. In each case, the scheme was intended to take advantage of Chapter 2 of Part 7 of the Income Tax (Earnings
and Pensions) Act 2003 (“ITEPA”), as amended by Schedule 22 to the Finance Act
2003 (“Chapter 2”). Although the schemes were also designed to avoid the payment
of national insurance contributions, it is unnecessary to discuss that aspect, as it is common ground that the position in that regard is the same as in relation to income tax.
The background and context of Chapter 2
3. It may be helpful to begin by considering the relevant legislation. Chapter 2

is best understood against the background of the previous law, and in its context
within Part 7 of ITEPA.

4. Under ordinary principles of tax law, where an employee receives shares as part of his remuneration, he is liable to income tax on the value of the shares, less any consideration which he may have given for them, in accordance with the decision of the House of Lords in Weight v Salmon (1935) 19 TC 174. That case concerned a situation where the managing director of a company…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Keep reading for free

Create a free CaseChat account to read UBS AG v Revenue and Customs Comrs and more:

Read every judgment in full
Ask AI and get answers linked to paragraphs
See how each paragraph was cited in later cases
Download judgments as PDF or Word

Continue with Google

One click creates your free account or signs you in.

By continuing you agree to the Terms and Privacy Policy.

Details

Case: [2016] UKSC 13
Decision Date

CaseChat Overview and Summary

The parties to the appeal were UBS AG and DB Group Services (UK) Ltd, two financial institutions which had devised schemes to pay bonuses to employees in the form of shares, in order to avoid income tax. The Commissioners for Her Majesty's Revenue and Customs (HMRC) sought to tax the sums as earnings. The First-tier Tribunals held that the schemes were not within the scope of Chapter 2 of Part 7 of the Income Tax (Earnings and Pensions) Act 2003 ("ITEPA") and that the sums should be taxed as earnings. The Upper Tribunals and the Court of Appeal disagreed. The Supreme Court allowed the appeals. The Court held that Chapter 2 was concerned with a real and practical problem: the taxation of shares which were awarded to employees as a form of remuneration, and which were subject to restrictions designed to incentivise future performance. The purpose of the exemption from tax on acquisition conferred by section 425(2) of ITEPA was to address the practical problem which had arisen of valuing a benefit which was, for business or commercial reasons, subject to a restrictive condition involving a contingency. The exemption was not intended to apply to schemes which were carefully crafted to fall within its scope, purely for the purpose of tax avoidance. The conditions attached to the shares in the schemes did not make provision of the kind required by section 423 of ITEPA, and should be disregarded for the purpose of deciding whether the shares were restricted securities, since that was necessary in order to apply Chapter 2 as Parliament intended. The Court declined to disregard other steps in the scheme, namely the use of the bonus funds to buy shares in the vehicle companies, the award of the shares to the employees, and the subsequent redemption of the shares for cash. The shares should be taxed in accordance with ordinary taxation principles, as at the date of their acquisition, taking account of the conditions which had the effect of reducing their value.

Orders