Ben Nevis (Holdings) Limited and Metlika Trading Limited v Commissioners for HM Revenue & Customs
06 June 2013
Posted by: Author: Charl Geldenhuys
Author: SAIT Technical
In this matter, the appellant’s original case
was that Article 25A did not apply to tax debts arising prior to the
introduction of the 2010 Protocol. Alternatively, the effect of Article 27 was
to limit the temporal scope of Article 25A for tax debts raised on or after 1
January 2013. The Appellants abandoned the former argument, leaving their case
in the ground for appeal. Within these grounds, the Appellants submitted that
Article 25A does not permit the collection of tax debt because Article 27
applies to Article 25A and has the effect of precluding mutual assistance in
the collection of tax debts which relates to periods prior to 1 January 2003.
Nevis (first appellant) and Metlika Trading Limited (MTL) (second appellant)
are both companies incorporated in the British Virgin Islands. These companies
are owned and controlled by a South African businessman, Mr David King. Ben
Nevis became liable for the total sum of R2.6 Billion (Approximately £222 million) in taxes to the Commissioner of the
South African Revenue Service (SARS) during the 1998, 1999 and 2000 years of
SARS argued that Mr King became aware of the investigation
into Ben Nevis’ tax affairs and transferred the company’s assets into MTL. SARS
found out that as a result of these activities, a fund of approximately £7.8 million has been credited to a
London bank account in the name of MTL. SARS made a request to the Her
Majesty’s Revenue and Customs to assist in the collection of the tax debt.
In 1988, the council of Europe and the OECD adopted a joint
convention on mutual administration assistance in tax matters which included the
provision for assistance in the recovery of taxes. Since 2003, the OECD modern
conventions on double taxation have also included provisions for mutual
assistance in the collection of taxes. There have been double tax agreements in
force between the United Kingdom and South Africa since 1939. During the appeal,
the courts have examined the text from double tax agreements from 1939, 1946,
1962, 1968 and 2002. The 2002 Convention was signed on the 4th of
July 2002. In its original form there were no provisions for mutual assistance
in the collection of taxes. On the 8th November 2010, the United
Kingdom and South Africa signed a Protocol, also known as the 2010 Protocol,
which amended the 2002 Convention and it came into force on 13 October 2011.
This Protocol introduced for the first time, in a treaty between the United
Kingdom and South Africa, a provision for the assistance in the collection of
taxes (Article 25A and Article 27).
The High Court dismissed the Appellants argument and further
held that once the 2010 Protocol entered into force, Article 25A will apply to
all tax debts regardless of when they arose. These taxes will only be subject
to the qualifications in Article 25A itself and to the request for assistance
being made on or after the 2010’s Protocols entered into force. The High Court
considered this to be in accordance with the OECDs’ Model Tax Convention on
which both the Article 25A and Double Tax Agreement is based.
The purpose of the 2010 protocol was to assist international
tax enforcement. This does not suggest any logical or policy reason for
imposing a temporal limitation on the scope of Article 25A which gave it
retrospective effect but excluded tax years arising earlier than the coming effect
of the 2002 Convention.
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