UK Tax Tribunal Considers Religious Discrimination
16 July 2013
Posted by: Author: Amanda Banks
Author: Amanda Banks
A tax tribunal in the UK has rejected a company's claim that it was subjected to religious discrimination when it was told to pay GBP50m in Stamp Duty Land Tax following a transaction involving Shari'a-compliant financing.
The judges said that the case, which concerned the purchase of the former Chelsea Barracks in central London with funding from a Qatari financial institution, raised "important and difficult questions" concerning anti-avoidance provisions in Section 75A of the Finance Act 2003.
The company that made the purchase, Project Blue, had argued that it was not liable to pay SDLT on the purchase because of sub-sale and alternative finance reliefs. HM Revenue and Customs argued that a notional transaction had occurred, and that SDLT of GBP38.36m was due based on the amount of GBP959m paid to the seller (the Ministry of Defence). However, because a Qatari bank had given Project Blue GBP1.25bn as consideration for the sub-sale of the freehold, the HMRC later amended the SDLT owed to GBP50m.
At the time of the transaction, Project Blue was part-owned by the Qatari Government, and the Qatari Government is now the sole owner. The extra amount charged raised the issue of whether the copmany had been subjected to religious discrimination in contravention of Article 14 of the European Convention on Human Rights on the basis that by choosing to finance its acquisition in a way that was Shari'a compliant, it had become liable for more SDLT than would otherwise have been the case. HMRC argued that that the extra amount was due not because the financing scheme had been Shari'a compliant, but because the financing had exceeded the purchase price and Project Blue had used a sub-sale.
The judges noted that Project Blue had provided no evidence as to why it chose to enter into a Shari'a-compliant arrangement. This meant that it had not established a religious motive, and therefore it could be shown that religious discrimination had occurred. However, the judges also clarified that it not necessary for an appellant claiming the protection of Article 14 to show that the actual way in which it carried out a transaction was the only way in which the transaction could have been performed.
According to HMRC, SDLT legislation removes tax obstacles to alternative property finance transactions, including Islamic finance transactions, to ensure that they are not taxed more than conventional loans. However, in this instance, the transactions were combined with others in what HMRC describes as "a complex tax avoidance scheme designed to ensure that no tax was payable at all.
"HMRC says that the judgment affects 24 similar commercial cases and around 900 mass market residential cases, and that it protects GBP85 million of tax revenue.