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Session 2001- 02
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Judgments

Judgments - Regina v. Allen

HOUSE OF LORDS

Lord Bingham of Cornhill Lord Nicholls of Birkenhead Lord Steyn Lord Hutton Lord Scott of Foscote

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

REGINA

v.

ALLEN

(APPELLANT)

(ON APPEAL FROM THE COURT OF APPEAL

(CRIMINAL DIVISION))

ON 11 OCTOBER 2001

[2001] UKHL 45

LORD BINGHAM OF CORNHILL

My Lords,

    1. I have had the benefit of reading in draft the opinion of my noble and learned friend Lord Hutton, with which I am in full agreement. For the reasons he gives I would dismiss this appeal.

LORD NICHOLLS OF BIRKENHEAD

My Lords,

    2. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Hutton. For the reasons he gives I too would dismiss this appeal.

LORD STEYN

My Lords,

    3. I have read the opinion of my noble and learned friend Lord Hutton. For the reasons he gives I would also dismiss the appeal.

LORD HUTTON

My Lords,

    4. The appellant, Brian Roger Allen, was charged before His Honour Judge Hordern and a jury in the Crown Court at Knightsbridge on 13 counts of cheating the public revenue of income tax and corporation tax. He was convicted on 19 February 1998 on all counts and on 20 February he was sentenced to 13 concurrent terms of seven years' imprisonment. A confiscation order was made against him pursuant to section 71 of the Criminal Justice Act 1988 in the sum of £3,137,165 with a consecutive term of seven years' imprisonment in default.

    5. Each of the first seven counts charged the same offence of cheating the public revenue of corporation tax by concealing and/or otherwise failing to disclose the existence of profits made by an offshore company, which was managed and controlled by the appellant in the United Kingdom. Count 1 was as follows:

    "STATEMENT OF OFFENCE

    Cheating Her Majesty the Queen and the Commissioners of Inland Revenue, contrary to common law.

    PARTICULARS OF OFFENCE

    BRIAN ROGER ALLEN, between 1 January 1980 and 31 March 1992, with intent to defraud and to the prejudice of Her Majesty the Queen and the Commissioners of Inland Revenue, cheated Her Majesty the Queen and the Commissioners of Inland Revenue of public revenue, namely corporation tax, by concealing from and/or otherwise failing to disclose to the Commissioners of Inland Revenue for the purposes of the Taxes Acts the existence of profits made by an off-shore company, namely Meldrette Investments Ltd, which was managed and controlled by him in the United Kingdom during the said period."

Counts 2 to 7 charged the same offence in relation to six different offshore companies.

    6. Counts 8, 9, 10, 12 and 13 charged the same offence of cheating the public revenue of income tax by delivering and/or causing to be delivered a tax return for a particular year showing income which was false, misleading and deceptive in that it omitted to declare all the income and benefits which the appellant received during that period.

Count 8 was as follows:

    "STATEMENT OF OFFENCE

    Cheating Her Majesty the Queen and the Commissioners of Inland Revenue, contrary to common law.

    PARTICULARS OF OFFENCE

    BRIAN ROGER ALLEN, on or about 3 April 1992, with intent to defraud and to the prejudice of Her Majesty the Queen and the Commissioners of Inland Revenue, cheated Her Majesty the Queen and the Commissioners of Inland Revenue of public revenue, namely income tax, by delivering and/or causing to be delivered to an Inspector of Taxes a tax return for the year 1989/1990 showing income for the year to 5 April 1989 in respect of himself which was false, misleading and deceptive in that it omitted to declare all the income and benefits which he received during the said period.

    Particulars of omitted income and benefits are - income and benefits received from:

    (i)  Peche D'Or Investments Ltd;

    (ii)  Meldrette Investments Ltd."

Count 9 related to the year 1990/1991, count 10 related to the year 1991/1992, count 12 related to the year 1992/1993 and count 13 related to the year 1994/1995. Counts 9 and 10 related to the omission of income and benefits received from (i) Peche D'Or Investments Ltd and (ii) Meldrette Investments Ltd. Count 12 related to the omission of income and benefits received from (i) Peche D'Or Investments Ltd, (ii) Meldrette Investments Ltd and (iii) Berkshire Investments Ltd. Count 13 related to the omission of income and benefits received from Peche D'Or Investments Ltd.

    7. The Crown case against the appellant on counts 1 to 7 was that he had dishonestly concealed the fact that he managed and controlled in the United Kingdom the businesses of the respective companies specified in those counts in order to give the false impression that the companies were not resident in the United Kingdom so as to avoid corporation tax being charged against those companies.

The Crown case against the appellant on counts 8 to 10 and 12 to 13 was that the appellant concealed the provision of living accommodation and benefits received from the offshore companies for which he was liable to income tax as a shadow director.

Count 11 was as follows:

    "STATEMENT OF OFFENCE

    Cheating Her Majesty the Queen and the Commissioners of Inland Revenue, contrary to common law.

    PARTICULARS OF OFFENCE

    BRIAN ROGER ALLEN, on or about 3 April 1992, with intent to defraud and to the prejudice of Her Majesty the Queen and the Commissioners of Inland Revenue, cheated Her Majesty the Queen and the Commissioners of Inland Revenue of public revenue, namely income tax, by delivering and/or causing to be delivered to an Inspector of Taxes a schedule of assets as at 31 January 1991 in respect of his assets and the assets of his minor children which was false, misleading and deceptive in that it omitted to disclose divers assets which were owned by him.

    Particulars of the omitted assets are - his beneficial interest in shares issued by off-shore companies, his beneficial interest in properties held in the names of off-shore companies, and his beneficial interest in bank accounts held in the United Kingdom and in Jersey in the names of off-shore companies."

    8. The appellant appealed against his convictions to the Court of Appeal on a number of grounds, and his appeal was dismissed and the convictions affirmed [2000] QB 744. One ground of appeal advanced before the Court of Appeal and rejected by it was that under section 739(2) of the Income and Corporation Taxes Act 1988 the income of the offshore companies was deemed to be the income of the appellant and that the income was also deemed not to be the income of those companies. In consequence none of the companies was liable to any corporation tax as the income was not their income and therefore the appellant's dishonesty could not have caused any loss to the revenue and he could not be guilty of the offence of cheating the revenue.

    9. In respect of this issue the Court of Appeal certified the following point of law:

    "Whether section 739(2) of the Income and Corporation Taxes Act 1988 has either of the additional effects, in relation to income which it requires to be deemed to be income of an individual ordinarily resident in the United Kingdom

    a)  of requiring, for corporation tax purposes, that same income to be deemed not to be the income of a company incorporated outside the United Kingdom whose income it actually is;

    b)  of requiring for income tax purposes, that same income to be deemed not to be the income of the person (whether an individual or a company) resident or domiciled outside the United Kingdom whose income it actually is".

    10. The appellant's appeal was heard together with the appeal of Dermot Jeremy Dimsey who had administered on behalf of the appellant the offshore companies (and their bank accounts) specified in the indictment against the appellant and who had been convicted of the offence of conspiracy to cheat the public revenue. On the appellant's appeal before this House his counsel, Mr Newman QC, adopted the argument of counsel for Dimsey, Mr Venables QC, on the section 739(2) point. For the reasons given in the speech of my noble and learned friend Lord Scott of Foscote in the case of Dimsey, with which I am in full agreement, I would reject the appellant's ground of appeal in relation to section 739(2).

The shadow director point

    11. Another ground of appeal advanced before the Court of Appeal and rejected by it was that as a shadow director the appellant was not liable to tax in respect of the provision of living accommodation and benefits in kind. In respect of this issue the Court of Appeal certified the following point of law:

    "Whether section 145 and/or section 154 of the Income and Corporation Taxes Act 1988 impose a charge to tax under Schedule E in respect of relevant benefits received from a company by an individual who, while having no actual office or employment with that company, none the less falls within the extended meaning of 'director' under section 168(8) of the Act."

    12. Under the provisions of Chapters I and II of Part V of the Income and Corporation Taxes Act 1988 (the ICTA) where, by reason of his employment, a person is provided with living accommodation or he or members of his family or household are provided with benefits in kind, the value of the accommodation or the cash equivalent of the benefits is to be treated as emoluments of his employment for the purposes of Schedule E.

    13. Section 145(1) in Chapter I provides in relation to the provision of living accommodation:

    "Subject to the provisions of this section, where living accommodation is provided for a person in any period by reason of his employment, . . ., he is to be treated for the purposes of Schedule E as being in receipt of emoluments of an amount equal to the value to him of the accommodation for the period, less so much as is properly attributable to that provision of any sum made good by him to those at whose cost the accommodation is provided."

    Section 145(8) provides:

    "For the purposes of this section—

    (b)  the expressions 'employment', 'family or household', 'director', 'full-time working director', 'material interest' and (in relation to a body corporate) 'control' shall be construed in accordance with subsections (2), (4) and (8) to (12) of section 168 as if this section were included in Chapter II of this Part."

    Section 154(1) in Chapter II provides in relation to benefits in kind:

    "Subject to section 163, where in any year a person is employed in employment to which this Chapter applies and—

    (a)  by reason of his employment there is provided for him, or for others being members of his family or household, any benefit to which this section applies; and

    (b)  the cost of providing the benefit is not (apart from this section) chargeable to tax as his income,

    there is to be treated as emoluments of the employment, and accordingly chargeable to income tax under Schedule E, an amount equal to whatever is the cash equivalent of the benefit."

  

    Section 167(1) sets out the employment to which Chapter II relates:

    "This Chapter applies—

    (a)  to employment as a director of a company (but subject to subsection (5) below), and

    (b)  to employment with emoluments at the rate of £8,500 a year or more."

    Section 168 provides:

    "(1)  The following provisions of this section apply for the interpretation of expressions used in this Chapter.

    (2)  Subject to section 165(6)(b), 'employment' means an office or employment the emoluments of which fall to be assessed under Schedule E; and related expressions shall be construed accordingly.

    (8)  Subject to subsection (9) below, 'director' means—

    (a)  in relation to a company whose affairs are managed by a board of directors or similar body, a member of that board or similar body;

    (b)  in relation to a company whose affairs are managed by a single director or similar person, that director or person; and

    (c)  in relation to a company whose affairs are managed by the members themselves, a member of the company,

    and includes any person in accordance with whose directions or instructions the directors of the company (as defined above) are accustomed to act.

    (9)  A person is not under subsection (8) above to be deemed to be a person in accordance with whose directions or instructions the directors of the company are accustomed to act by reason only that the directors act on advice given by him in a professional capacity."

Schedule E set out in section 19 in Part I of ICTA provides in paras 1 and 5:

    "1.  Tax under this Schedule shall be charged in respect of any office or employment on emoluments therefrom which fall under one or more than one of the following Cases—

    [Case I: any emoluments for any year of assessment in which the person holding the office or employment is resident and ordinarily resident in the United Kingdom, subject however to section 192 if the emoluments are foreign emoluments (within the meaning of that section) and to section 193(1) if in the year of assessment concerned he performs the duties of the office or employment wholly or partly outside the United Kingdom;

    Case II: any emoluments, in respect of duties performed in the United Kingdom, for any year of assessment in which the person holding the office or employment is not resident (or, if resident, not ordinarily resident) in the United Kingdom, subject however to section 192 if the emoluments are foreign emoluments (within the meaning of that section);

    Case III: any emoluments for any year of assessment in which the person holding the office or employment is resident in the United Kingdom (whether or not ordinarily resident there) so far as the emoluments are received in the United Kingdom;]

    and tax shall not be chargeable in respect of emoluments of an office or employment under any other paragraph of this Schedule. . . .

    5.  The preceding provisions of this Schedule are without prejudice to any other provision of the Tax Acts directing tax to be charged under this Schedule and tax so directed to be charged shall be charged accordingly."

    14. The argument of the Crown can be briefly summarised as follows. A director of a company is treated by sections 167(1) and 168(2) as being in "employment" for the purposes of Chapter II of Part V, even if he is not actually employed by the company. Therefore the effect of section 167(1)(a) is that the Chapter applies to a director who has no actual employment. The effect of the concluding part of section 168(8) is that for the purposes of the Chapter and in particular for the purposes of section 168(2) a shadow director is treated as holding the office of director. Accordingly the appellant as a shadow director was chargeable under Schedule E in respect of the value of the living accommodation and benefits in kind received from the companies.

    15. Mr Kessler, junior counsel for the appellant, advanced two main arguments. The first argument was that in Edwards v Clinch [1982] AC 845, 861 Lord Wilberforce stated that the word "office" must "connote a post to which a person can be appointed, which he can vacate and to which a successor can be appointed". Therefore a shadow director does not hold an office. Section 168(8) states that a "director" includes a shadow director, but it should not be read as deeming a shadow director to hold an office. The purpose of section 168(8) was to avoid the repetition of the words "director or deemed director" when the word "director" is used numerous times in Chapter II. The purpose was not to extend the meaning of other words such as "office".

    16. The second argument was that even if the effect of the concluding part of section 168(8) is that a shadow director has an "office", he does not have "employment" within the meaning of section 168(2) because he does not have an office "the emoluments of which fall to be assessed under Schedule E". Two reasons were advanced in support of this argument. The first was that in respect of the deemed office of a director, it is not one the emoluments of which fall to be assessed under Schedule E. On this point the Crown's argument was circular because it assumed this requirement to be satisfied in order that the emoluments can be regarded as falling to be assessed under Schedule E. The second reason was that the charge which the Crown seeks to impose is one to which paragraph 5 of Schedule E relates and that paragraph does not impose a territorial limitation. In consequence the Crown's argument would result in a charge to tax without territorial limitations so that shadow directors throughout the world provided with living accommodation or benefits would be caught, which cannot have been the legislative intention. Mr Kessler relied on the acceptance of this argument by a Special Commissioner, Dr John Avery Jones, who, in respect of the equivalent section in the Finance Act 1977 to section 145, stated in In re Taxpayer FI (SC 3099/93):

    "As we have seen, the definition of employment has the effect of providing a territorial limitation; if the employment is within that limitation, section 33 deems there to be Schedule E emoluments unrelated to any Case of Schedule E. If one could use the deemed emoluments under the section to complete the circle in the definition of employee and make the section apply, there would be no territorial limitation to the section and all employees in the world provided with living accommodation would be caught. This cannot have been intended. This seems to me to be a compelling reason why one cannot use the deemed emoluments to make the section apply."

    17. Mr Kessler supported his two arguments on the construction of the statutory provisions by a third argument of a more general nature relating to the undesirable and anomalous consequences of the construction contended for by the Crown. He submitted that it is a world-wide practice to use companies as a vehicle to hold wealth. It is normal practice for persons resident but not domiciled in the United Kingdom to hold assets situated in the United Kingdom via an offshore company for the object of mitigating inheritance tax. In order to make the disposal of a foreign home easier, it is also normal practice for persons resident and domiciled in the United Kingdom to hold that home via an offshore company. The judgment of Morritt LJ in Secretary of State for Trade and Industry v Deverell [2000] 2 WLR 907 gives a wide meaning to the words in section 22(4) of the Company Directors Disqualification Act 1986 which are very similar to the concluding words of section 168(8) so that a person is regarded as a shadow director if the properly appointed directors surrender their discretion and give effect to directions or instructions from that person.

    18. In consequence on the Crown's argument the scope of the living accommodation and benefit in kind provisions would be very wide. Mr Kessler further submitted that in many cases the link between the services rendered to the company by the alleged shadow director and the provision of living accommodation or benefits alleged to be emoluments would be tenuous or non-existent. There is a valid distinction between taxing benefits flowing from the holding of a real office or employment subject to charge under Schedule E and taxing a benefit which is not in reality attributable to an office or employment but is attributable to a person's direct or indirect ownership of a company.

    19. My Lords, I am unable to accept this argument. It is clear that it was the intention of Parliament that living accommodation and benefits in kind provided by a company for a director should be taxed as emoluments received by him from his office. Whilst in some cases the link between the services provided by a shadow director and the accommodation or benefits which he receives from the company may be tenuous, there will be many cases where the services of a shadow director are as valuable as those of an actual director and there would be no valid distinction between the services provided by a director and those provided by a shadow director. If the appellant's arguments were correct it would be simple for a person who is a director in all but name to avoid the charge to tax under sections 145 and 154. In my opinion it was the intention of Parliament in enacting the concluding part of section 168(8) that accommodation and benefits in kind received by a shadow director should be taxed in the same way as those received by a director, and I consider that the statutory provisions relied upon by the Crown are effective to achieve that purpose.

    20. I am unable to accept Mr Kessler's first argument on the construction of the provisions. Under the concluding part of section 168(8) a shadow director is taken to be a director and therefore under section 167(1)(a) and section 168(2) he is employed in the office of a director if the emoluments of that office can be regarded as falling to be assessed under Schedule E. Taking account of the intention of Parliament in enacting the concluding part of section 168(8) that a distinction should not be drawn between directors and shadow directors I consider that Mr Kessler's circularity argument does not enable a shadow director to escape the charge to tax. In my opinion Mr Milne QC for the Crown was correct in submitting that there is a statutory circularity built into the provisions, so that as a shadow director is to be regarded as a director it follows that living accommodation and benefits received by him should be treated as emoluments falling to be assessed under Schedule E.

    21. I am also unable to accept Mr Kessler's second argument in relation to territorial limitations. He submitted that the tax imposed by sections 145(1) and 154(1) was charged under paragraph 5 of Schedule E, which did not contain a territorial limitation, and not under one of the three Cases set out in paragraph 1. However paragraph 5 relates to other provisions of the Tax Acts directing tax to be charged "under this Schedule". The concluding words of paragraph 1 state: "tax shall not be chargeable in respect of emoluments of an office or employment under any other paragraph of this Schedule." Therefore when another provision of a Tax Act directs that benefits are to be charged to tax as emoluments under Schedule E, I consider that those emoluments will fall within paragraph 1 and are not to be regarded as falling within paragraph 5. A territorial limitation is contained within each of the three Cases in paragraph 1, and accordingly a territorial limitation is present in respect of the tax imposed by section 145(1) and section 154(1). Accordingly I would hold that the appellant was rightly convicted as a shadow director and that the convictions on counts 8, 9, 10, 12 and 13 are safe.

Self-incrimination

    22. The Crown case against the appellant on count 11 was that in a schedule of assets provided by him to the Revenue during the course of a Hansard investigation into his affairs he omitted to list his beneficial interest in shares issued by offshore companies. Before the Court of Appeal as a ground of appeal the appellant criticised part of the judge's summing up on the issue whether certain trust deeds were a sham. This ground of appeal was rejected by the Court of Appeal and the ground has not been renewed before this House.

    23. However, with the leave of the House, the appellant was permitted to argue a new point relating to article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms ("the Convention"). This argument consisted of two parts and can be briefly summarised as follows. First, under section 20(1) of the Taxes Management Act 1970 the Revenue requested the appellant to provide certain information, and then under the Hansard procedure the Revenue both threatened and induced the appellant to produce the schedule of assets to which count 11 related. In consequence the appellant's right to a fair trial under article 6 was violated because his right not to incriminate himself was breached. Secondly, although the trial and conviction of the appellant took place before the relevant sections of the Human Rights Act 1998 came into force on 2 October 2000 the appellant was entitled, pursuant to section 7(1)(b) and 22(4) of the Act to rely in an appeal heard after 2 October 2000 on rights conferred by the Convention and incorporated into English law by the Act. The House heard the submissions of the parties before the House gave judgment on 5 July 2001 R v Lambert [2001] 3 WLR 206. In Lambert's case the House held that the 1998 Act did not operate retrospectively to make unsafe by reason of a breach of article 6 a conviction prior to 2 October 2000 which was safe under English law at the time the conviction took place. Therefore, on that ground the appellant's argument in respect of his conviction on count 11 must fail. However as the issue whether there was a violation of the appellant's rights under article 6 was fully argued and as the point is one of general importance I propose to express my opinion on it.

    24. As I have stated, the Crown case against the appellant on count 11 related to the schedule of assets referred to in that count in which the appellant omitted to specify his very substantial interests in offshore companies. Section 20 of the Taxes Management Act 1970 provides:

    "(1)  Subject to this section, an inspector may by notice in writing require a person—

    (a)  to deliver to him such documents as are in the person's possession or power and as (in the inspector's reasonable opinion) contain, or may contain, information relevant to—

    (i)  any tax liability to which the person is or may be subject, or

    (ii)  the amount of any such liability, or

    (b)  to furnish to him such particulars as the inspector may reasonably require as being relevant to, or to the amount of, any such liability.

    "(7)  Notices under subsection (1) or (3) above are not to be given by an inspector unless he is authorised by the Board for its purposes; and—

    (a)  a notice is not to be given by him except with the consent of a General or Special Commissioner; and

    (b)  the Commissioner is to give his consent only on being satisfied that in all the circumstances the inspector is justified in proceeding under this section."

Section 98(1) of the 1970 Act provides:

    "Subject to the provisions of this section and section 98A below, where any person—

    (a)  has been required, by a notice served under or for the purposes of any of the provisions specified in the first column of the Table below, to deliver any return or other document, to furnish any particulars, to produce any document, or to make anything available for inspection, and he fails to comply with the notice, or

    (b)  fails to furnish any information, give any certificate or produce any document or record in accordance with any of the provisions specified in the second column of the Table below,

    he shall be liable, subject to subsections (3) and (4)—

    below—

    (i)  to a penalty not exceeding £300, and

    (ii)  if the failure continues after a penalty is imposed under paragraph (i) above, to a further penalty or penalties not exceeding £60 for each day on which the failure continues after the day on which the penalty under paragraph (i) above was imposed (but excluding any day for which a penalty under this paragraph has already been imposed)."

 
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