ANNEX 1:: MINOR CHANGES IN THE LAW Change 8: Double taxation relief: cases about being taxed otherwise than in accordance with DTAs: capital gains tax and PRT: sections 124 and 125
This change extends the scope of section 815AA of ICTA (DTR: mutual agreement procedure and presentation of cases under DTAs) by extending references in the section to “the Tax Acts” to include the enactments relating to capital gains tax and the enactments relating to PRT.
Taxpayers may maintain that they are being taxed otherwise than in accordance with the relevant DTA. The case may be resolved by the Commissioners for HMRC either unilaterally or else bilaterally by mutual agreement with an authority in the territory to which the DTA relates. Section 815AA of ICTA provides for such solutions and mutual agreement to be given effect.
In such cases, it will often be necessary to consider matters relating to the other territory. This can take time. Accordingly, section 815AA(3) of ICTA extends the deadline for making a claim for relief under any provision of the Tax Acts and section 815AA(5) provides that presenting a case under and in accordance with the relevant DTA is not a claim for relief under the Tax Acts. As a result, the deadlines set by section 815AA override the normal statutory deadlines set by the Tax Acts.
Section 815AA(3) and (5) of ICTA refer to “the Tax Acts” without qualification. Section 815AA of ICTA was inserted into ICTA by FA 2000. It is considered that the references in section 815AA of ICTA to section 788 of ICTA are, in reliance on section 20(2) of the Interpretation Act 1978, to be read as including references to section 788 of ICTA as applied (a) for capital gains tax purposes by section 277(1) of TCGA and (b) for PRT purposes by section 194(1) of FA 1993. In other words, section 815AA of ICTA applies across the four taxes to which DTAs under Part 2 of this Act can apply.
Section 815AA of ICTA contains references to tax (and to being taxed). Section 832(3) of ICTA, which says that “tax” in the Tax Acts means income tax or corporation tax if neither is specified, does not apply if the context otherwise requires. Although section 815AA of ICTA is part of the Tax Acts (as defined for the purposes of ICTA by section 831(2) of that Act), section 815AA of ICTA is considered to extend to any capital gains tax elements, and any PRT elements, of DTAs. This is considered to give rise to a context in which “tax” is required to mean something other (in fact, something more) than income tax or corporation tax. The sections which rewrite section 815AA of ICTA are not, so far as they relate to capital gains tax and PRT, part of the Tax Acts. Accordingly, those sections, so far as they relate to capital gains tax and PRT, are not governed by section 832(3) of ICTA. As a result, it is considered that the unqualified use of “tax” (and “taxed”) in those sections results in those expressions having the same meaning in those sections as in section 815AA of ICTA.
Section 815AA of ICTA refers to “the Tax Acts”. Whether and how section 20(2) of the Interpretation Act 1978 applies to those references is not beyond argument. Even though section 815AA of ICTA is legislation made in the year 2000, it is considered that the section’s references to the Tax Acts are not limited to those Acts as they stood in 2000 (which would be the result of applying the first limb of section 20(2) of the Interpretation Act 1978). Rather, those references are considered to be references to the Tax Acts as in force from time to time.
The second limb of section 20(2) of the Interpretation Act 1978 would, in the absence of contrary intention disapplying it or modifying its application, mean that the references in section 815AA of ICTA to “the Tax Acts” would include those Acts as applied or extended by legislation predating FA 2000. And applying the second limb to sections 124 and 125 of this Act, which are based on section 815AA of ICTA, would mean that the references in those sections to “the Tax Acts” would include those Acts as applied or extended by legislation predating the enactment of this Act.
All of this is relevant because, in particular, administrative provisions in TMA that are part of the Tax Acts are applied for PRT purposes by Schedule 2 to OTA 1975. Although it is arguable that the second limb does apply, the outcome of its unmodified application would be too arbitrary to be likely to have been the legislative intention. Accordingly, the references to the Tax Acts either (a) include no such applications or extensions or (b) include all such applications and extensions.
FA 2000 inserted section 815AA of ICTA to elucidate an aspect of section 788(3)(a) of that Act, which had previously been relied on for giving effect to solutions and mutual agreements. Since section 194(1) of FA 1993 applies section 788(3)(a) of ICTA for PRT purposes, the references to the Tax Acts in section 815AA of ICTA include the administrative provisions in TMA relating to PRT (and any other extensions and applications of the Tax Acts to PRT).
But any PRT administrative provisions which do not fall within the Tax Acts, as extended for the purposes of PRT, are outside the scope of section 815AA(3) and (5) of ICTA. Accordingly, section 815AA will not override any time limits set by such provisions. This is anomalous.
Furthermore, the provisions of TMA applying for capital gains tax purposes apply directly, and not by application or extension of the Tax Acts. It follows that these provisions (and any other capital gains tax administrative provisions falling outside the Tax Acts, as extended for the purposes of capital gains tax) are outside the scope of section 815AA(3) and (5) of ICTA. Accordingly, section 815AA does not override, for example, section 43 of TMA (time limit for making claims) in its application to capital gains tax.
In practice, the scope of section 815AA of ICTA is not given such a narrow interpretation.
For example, the United Kingdom’s DTA with the United States of America (SI 2002/2848) covers income tax, capital gains tax, corporation tax and PRT. Commenting on article 26 of this DTA (mutual agreement procedure), paragraph 19887 of HMRC’s Double Taxation Relief Manual (a) states that, as a result of section 815AA of ICTA, the time limits laid down by the DTA override the normal time limits set by UK domestic tax law and (b) does not suggest that this only applies in relation to income tax and corporation tax.
Accordingly, sections 124 and 125 give this practice a clear statutory basis by referring not only to the Tax Acts but also to the enactments relating to capital gains tax and the enactments relating to PRT.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.