The retrospective effect of Section 58 Finance Act 2008 by reference to the EC Treaty (Article 56), and the compatibility of Section 58 with the European Court of Human Rights (ECHR) (on appeal in the case of R (on the application of Huitson) v R & C Commrs)

The taxpayers set up a number of settlements in 2005 aimed at taking advantage of a perceived loophole in the Double Tax Agreement between the UK and the Isle of Man (IOM) in relation to income earned by them as UK residents. Under the scheme the taxpayers were partners in an IOM partnership.

HMRC wrote to the taxpayers by letter in August 2008 saying that as a result of section 58 FA 2008 they would be chargeable to tax for every year in which income arose, the taxpayers then issued proceedings seeking judicial review of what they viewed as retrospective application of section 58.

They sought a declaration that retrospective application of the section was:

1. incompatible with article 56 of the EC Treaty (the EC point); and
2. incompatible with article 1 of the First Protocol to the ECHR; and
3. sought to quash HMRC's decision to apply section 58 retrospectively

The High Court dismissed the taxpayers claim on point (ii) but permission to appeal was granted. The taxpayers also sought permission to appeal on point (i).

Deciding whether to grant the taxpayers appeal, permission was granted to apply for judicial review.

The real question was whether the correct tribunal was the tax tribunal or the court in judicial review proceedings. Although a direct attack on the legislation could be said to be late and/or was a matter better decided by the tax tribunal, it could not be said to be a matter not susceptible to judicial review.

Although the argument was different to the ECHR point (point ii), the underlying point in relation to this particular challenge was retrospectivity and therefore it would be convenient to hold a hearing to deal with both points together.

To achieve that, it was, instead of granting permission to appeal, appropriate to grant permission for judicial review, in addition to any necessary extension of time to allow those proceedings to amount to a direct attack on section 58. That review would take place in the Court of Appeal and was to be listed at the same time as the appeal in the Huitson case.

For the full text of the case, go to http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWCA/Civ/2010/558.html&query=Shiner&method=boolean