- Purposive interpretation and the settlements legislation (Clipperton v HMRC)
- What are the practical implications of this case?
- What was the background?
- What did the court decide?
- Case details
Tax analysis: Clipperton v HMRC involved a tax avoidance scheme by which a company (Topco) sought to make a distribution to its shareholders, using a mechanism consisting of a newly-incorporated subsidiary (Subco) and a trust. HMRC argued that, despite the complex arrangements through which the company’s profits passed before getting to the shareholders, the money was still a distribution when it reached those shareholders. This was on the basis of the Ramsay line of case law. But if had not been a distribution in the shareholders’ hands, the First-tier Tribunal (FTT) held that the trust would have counted as a settlement; Topco was the settlor; and so, as the money passed to the trust in the form of income, it would have been deemed to be Topco’s income and therefore not liable to tax in the shareholders’ hands. This decision is important because of the extensive reach it gives to the Ramsay approach to applying tax legislation and because of the restricted interpretation it gives to the idea of what counts as a settlement for the purposes of the settlements legislation. It is suggested that the FTT’s decision on the latter point is doubtful. Written by Philip Simpson QC of Old Square Tax Chambers.
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