In Ardmore Construction Limited (TC03580 published on 23 May 2014) the First-tier Tribunal considered whether HMRC can refer to unpublished Special Commissioner decisions in court, and what the test is to locate the source of interest for income tax purposes?
The case concerned the payment of interest by Ardmore, a UK construction company, to two offshore companies controlled by offshore trusts. HMRC contended that the payments had a UK source and so should have been subject to UK withholding tax.
As part of their argument, HMRC tried to rely on an unpublished Special Commissioner’s decision but the First-tier tribunal decided that they could not:
“There must be thousands of unpublished decisions known by and available only to HMRC. In our view, given that a persuasive authority, unless considered to be wrong, will as a matter of judicial comity be followed by the FTT, it cannot be right or just for HMRC to have such an advantage over a taxpayer.”
On the second point, the taxpayer argued that the source of interest is located in the place where credit is provided; however the FTT preferred the ‘multi-factorial’ approach suggested by HMRC in which a number of factors have to be considered in the round to determine the question.
Although this is not a surprising conclusion, the case is very helpful in that the key factors to consider were set out clearly by the FTT:
- The residence of the debtor;
- The place of enforcement of the debt against the debtor;
- The residence of any guarantor;
- The location of any security;
- The situs of the debt;
- The proper law of the contract; and
- The place of payment of the interest.
Applying these factors to the facts given it was held that the interest arose in the UK, because that is where:
- Ardmore (the debtor) was resident;
- the debt was situated;
- the funds used for the payment originated; and
- the debt would be enforced (if necessary).