Jurisdiction to Tax Flashcards
Government of India v Taylor (1955)
UK trust had a capital gain in India from liquidation of UK company which had been trading in India. Did not pay – Indian tax authorities attempted to get the tax claim recovered through UK courts, UK Courts held they had no jurisdiction to pursue claim.
Use: jurisdiction to tax, revenue rule, Art 27
Relfo Ltd v Varsani (2008)
UK liquidator’s claim for a UK company, against a business associate of the company’s director who had received monies from the director dishonestly, was not upheld by a Singapore Court. It was held as the UK tax authorities were the only creditor the claim was in substance to enforce a foreign revenue debt and was dismissed. No Article 27 on co-operation in tax treaty
Use: jurisdiction to tax, revenue rule, Art 27
AG Canada v RJ Reynolds (2001)
US Court of Appeal, Canadian government claim for lost tobacco duties. US Court struck out case as
held could not enforce another State’s tax laws. (Duties are not a covered tax in the DTA so assistance provisions could not apply).
US has no ‘Assistance in the collection of taxes’ article in its model tax treaty, which is present at Art 27 of the OECD treaty. Only has these clauses in DTAs with Denmark, Japan, France, Sweden, Canada & Netherlands).
Use: jurisdiction to tax, revenue rule, Art 27
Pasquantino v US (2005)
Smuggling liquor from the US to Canada to evade Canada’s import taxes. Smugglers argued US could not enforce Canadian law under the revenue rule, this argument was rejected by the court. In this instance it was held US law (Wire Fraud Statute) did not allow
interstate wires to be used for any scheme or artifice to defraud – this was the key to the prosecution,
the fact Canadian taxes would be collected and remitted to Canada was an indirect result of the application of US law.
Use: jurisdiction to tax, revenue rule, Art 27
Oroville Reman & Reload Inc v R (2016)
The appellant was a US company which performed reloading services for softwood lumber originating
from Canada. The company had no facilities, assets or operations in Canada. The company became entitled to a repayment of duty by the US Government. The
Canadian Government imposed a tax charge of around 18% on the refund. The company challenged the demand for the tax, on the grounds that Canada had
no jurisdiction to impose the tax, and that the Canadian legislation was extraterritorial in its operation. The Court held in favour of the taxpayer, noting that
the tax demand had been issued under the enforcement jurisdiction contrary to international law. The Court noted that enforcement jurisdiction can be exercised in a foreign state only with that state’s consent. In this instance there was no indication, direct or indirect, of any consent by the US to Canada giving them the right to collect Canadian tax which they claim the appellant in the US owes.
Uses: limits of tax jurisdiction, revenue rule, extraterritorial taxation
Jimenez v HMRC (2019)
UK Court of Appeal confirmed that UK tax authority, HMRC, has the power to issue an information notice to a taxpayer resident abroad. It has long been accepted that assistance in gathering information for tax purposes is less likely to interfere with state sovereignty on tax matters. Thus merely sending a notice to supply information to a person resident in
another state is not likely to be seen as an infringement of state sovereignty (and of the revenue rule).
Uses: jurisdiction, information gathering, revenue rule
Ben Nevis (Holdings) Ltd & Anor v HMRC [2013]
UK tax case. The double tax treaty article for the mutual assistance in the collection of debts (MTC this is Art 27, but found at Art 25A of the UK-South Africa
treaty) was held by the UK Court of Appeal to apply to all outstanding debts, not just those arising after the mutual assistance article came into force.
The UK-South Africa double tax treaty was amended by protocol, which came into force in October 2011, making provision for the mutual assistance in the collection of taxes.
Ben Nevis (Holdings) Ltd was a company incorporated in the British Virgin Islands (BVI), and was liable to the South African Revenue Service (SARS) for taxes (more than £200m, including penalties and interest) for the 1998, 1999 and 2000 tax years.
More than £7m of this money had been moved to a London bank account. SARS made a request to HMRC that it assist in the collection of the debt (now this was
possible under the treaty provisions).
In February 2012 HMRC and SARS obtained freezing orders against the companies involved. The companies appealed, contending that the revenue rule applied (on
the basis of the UK House of Lords decision in Government of India v Taylor & Hume, see Part I, Chapter 1) and therefore SARS’ claim was unenforceable in the English courts.
The Court of Appeal (May 2013) unanimously rejected Ben Nevis’s appeal. Lloyd Jones LJ held that the tax claims which HMRC and SARS were seeking to enforce
fell within Art 25A of the double tax convention, and that there was ‘no unfairness in Art 25A permitting the enforcement of pre-existing tax liabilities’.
The word “taxes” in the protocol did not need to be limited by reference to the date of the accrual of the tax debts and this was consistent with the objective of the protocol which was to assist international tax enforcement.
Use: Art 27, dates when use of Art 27 is allowed, protocol amendment to a treaty, the Revenue Rule, cooperation between tax authorities
Krok and another v Commissioner for the South African Revenue Services [2015]
The taxpayer was resident in South Africa until he
emigrated to Australia in 2002 where he remained for six years before deciding to move to the United Kingdom in 2008. On leaving South Africa he had been required by law to place certain assets under the control of a registered foreign exchange dealer. In January 2012 the Australian Tax Office (ATO) asked for
assistance from the South African Revenue Service (SARS) in the collection of taxes in an amount exceeding AS$25m that arose in the period of the taxpayer’s residence in Australia from 2002 to 2008. The Australia-South Africa double treaty had been concluded in 1999, without a provision for assistance in the collection of taxes. On 31 March 2008 a protocol was signed inserting a new Art 25A providing
for cross-border assistance, which entered into force in November 2008.
The taxpayer argued that the 2008 Protocol was not retroactive in effect and could not apply to taxes that arose in the period from 2002 to 2008 to which the
common law revenue rule applied. On appeal it was held that the application of Art 25A to taxes arising before the double tax treaty came into force was not
prevented by the revenue rule. The revenue rule could be abrogated by convention or treaty and had no relevance in the determination of the meaning
and scope of the protocol to the treaty. Notably the Court held that the wording of Art 2 said nothing about time limitations, and the taxes to which Arts 25 and 25A of the treaty applied were not limited by time (per the Ben Nevis case).
Use: application of the Revenue Rule, Art 27 collection of taxes
Torben Dileng v. CIR
The taxpayer Mr Dileng, resident in the US, owed the Danish tax authorities tax in excess of $2.5 million (from
when he was undertaking business in Denmark). Under the US-Denmark Tax Treaty, Article 27, the Danish tax authorities submitted a collection assistance request and a revenue claim, asking for the IRS to assist in collecting the Danish tax liabilities.
Mr. Dileng was taking action in Denmark to postpone/forbear the collection of the tax. However, the Danish authorities had issued a certificate for a finally determined tax liability, such that the tax was immediately collectable. Mr Dileng disputed the request.
The US district court dismissed his claim – a foreign application for postponement of tax collection does not impact on the taxpayer’s obligation to pay the tax. The
Court found that a finally determined revenue claim (as certified by the requesting state) must be treated like a US tax assessment for collection purposes within the
US, notwithstanding the fact Mr Dileng cannot challenge the liabilities in the US Courts. The Court commented the treaty does not require that the taxpayer have no remaining avenue to contest the tax, but rather that the requesting state has the full right to collect the tax. The taxpayer could seek an injunction to prevent collection or enforcement in Denmark.
Use: application of Art 27 collection of taxes
