Law and Rights
In countries where the "rule of law" applies, there is usually a dislike of legislation which has retrospective effect. In this brief post, I do not seek to discuss in any detail the merits or otherwise of the arguments for or against retrospective legislation save to say that with regard to legal certainty, it is important both for individual citizens and business enterprises as well as other legal entities that they can assess the legality and legal effects of a planned action before instituting such action. They ought not be exposed to the risk of burdensome, ex post changes to the legal rules. This is perhaps especially true when it comes to the question of newly introduced or sharpened penalties or similar sanctions, as well as changes in tax or fee legislation making it more rigid, or prohibitions and injunctions by the authorities, aimed at actions or behaviours that were allowed when they were adopted.
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Law and Rights
Retrospective law-making - is it catching on?
Her Majesty's Treasury has announced
that it is taking action with regard to certain tax avoidance schemes - HM Treasury - "Government action halts banking tax avoidance schemes" - 27th February 2012. More details of the government action may be seen at HMRC. The Treasury announcement states - "
'The Government has today taken steps to close two aggressive tax avoidance schemes recently disclosed to HM Revenue & Customs (HMRC) by a bank. The schemes, both of which are highly abusive, are designed to work around legislation that has been introduced in the past to block similar attempts at tax avoidance. By acting immediately, the Government will ensure the payment of over half a billion pounds in tax, protect further billions of tax from being lost and maintain fairness in the tax system.'
Clearly, many a hard-pressed taxpayer will shout HOORAY at this news and, let's face it, the banks are hardly flavour of the moment. However, it is worth pausing a moment to reflect on whether such retrospective action is proper in a society supposedly governed by the rule of law. By all means, close the schemes prospectively but is retrospective legislation of this type (or any type) acceptable? If so, in what circumstances is it acceptable?
The legal changes will be part of the 2012 Finance Act. This will not be the first retrospective taxation legislation in recent times. The Finance Act 2008 s.58 was enacted to amend certain other Acts and the amendments were to be treated "as always having had effect."
In the Court of Appeal, Huitson v Her Majesty's Revenue and Customs [2012] EWCA Civ 898, there was a judicial review challenging the legality of section 58. The review was based on Article 1 of Protocol 1 to the European Convention on Human Rights. The challenge failed with the Court of Appeal concluding:
- The judge was not wrong to conclude in his comprehensive, clear and excellent judgment that the retrospective provisions of the 2008 Act are proportionate and are compatible with Article 1 (of Protocol 1 to the European Convention on Human Rights). There are no grounds which would entitle this court to disturb it.
- In the circumstances of this case, the liability of the claimant under the retrospective legislation of s.58 to pay the UK income tax that he would have had to pay, if he had not participated in the tax avoidance scheme, is no more an unjustified interference with his enjoyment of his possessions than the ordinary liability that his fellow residents in the UK are under to contribute, by way of UK tax on their income, towards the costs of providing community and other benefits for the purposes of life in a civil society.
- In summary, the crucial points on examination of all the relevant circumstances of this case are that the retrospective amendments were enacted pursuant to a justified fiscal policy that was within the State's area of appreciation and discretionary judgment in economic and social matters. The legislation achieves a fair balance between the interests of the general body of taxpayers and the right of the claimant to enjoyment of his possessions, without imposing an unreasonable economic burden on him. This outcome accords with the reasonable expectations of the taxation of residents in the State on the profits of their trade or profession. The legislation prevents the Double Taxation Agreement tax relief provisions from being misused for a purpose different from their originally intended use. There has been no conduct on the part of the State fiscal authorities that has made the retrospective application of the amended legislation to his tax affairs an infringement of his Convention rights.
Words in italics added.
Another Court of Appeal decision to similar effect was R (Shiner) v HMRC [2012] EWCA Civ 892
Protocol 1 Article 1 is discussed at UK Human Rights Blog - here.
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