Ben Nevis (Holdings) Limited and Metlika Trading Limited v Commissioners for HM Revenue & Customs
06 June 2013
Posted by: Author: Charl Geldenhuys
Author: Charl Geldenhuys
Background to the case
Ben 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 assessment.
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 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.
Outcome of the case
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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