The MO 

Normal service has been resumed!

When we first put pen to paper (so to speak) with this edition of the MTN, the September weather had a decidedly autumnal chill about it. We sighed a sigh of relief, thankful that we could dig out our woolly jumpers, put on the central heating and look forward to months of dark, cold, miserable weather. Our hopes and spirits have been dashed as we go to print – an Indian summer has caught us all on the hop. The euro hedgies that inhabit Mayfair and St James are in two minds: linen suit, suede shoes and no socks, or formal suit with puffa gilet either on top of or under the jacket? Decisions, decisions.

Speaking of decisions, our first article looks at the Non-Resident Capital Gains Tax and the approach of the First Tier Tribunal to late-filing penalties. Next we consider the lack of property rights given to Vodafone and Cairn by the Indian Government. Then we finish with some news from Mauritius about the loss of some old friends, the GBC1 and GBC2 companies.

  1. Non-Resident Capital Gains Tax – the First Tier Tribunal and late filing penalties.
  2. Vodafone & Cairn Energy – What’s yours is mine.
  3. Mauritius Global Business Companies – the end of the road for GBC1s and 2s.

And finally…It’s the political party conference season at the moment here in the UK. We’ve resisted all temptation to comment on the rambling, incoherent Marxist nonsense from the Labour party (terrifying though it is) and will wait instead for the Conservatives and the MayBot to have their turn before having a pop.

God help us all!

Can Ignorance of the Law ever be a (Reasonable) Excuse?

In the not so distant past, real estate was the investment for non-UK resident individuals looking to invest in the UK. Along with a strong property market (particularly in London and the south), non-UK residents also enjoyed no capital gains tax (CGT) on disposal and no inheritance tax (IHT) or stamp duty land tax (SDLT), if the real estate was held via a corporate entity.

However, those of you who have attempted to purchase a property in central London will know the effect these breaks have had, especially in driving up prices. In response, the UK government has done quite a job over the past 5 years to level the playing field between UK residents and non-UK residents (although you would never hear Corbyn and McDonnell admitting to such – OK, we couldn’t resist at least one dig).

2013 saw the introduction of the snazzily titled Annual Tax on Enveloped Dwellings (ATED) which has led to CGT and an annual charge on residential property enveloped in a corporate vehicle (ATED-related gains and ATED). In 2015, the CGT rules were further expanded to include all residential property held by all non-UK resident individuals (NRCGT). In 2017, the UK government both overhauled the SDLT provisions increasing the surcharge for buy-to-let and additional home owners and brought residential property held by UK-resident non-UK domiciled individuals within the scope of IHT. As we said, quite a job.

But the breadth and volume of the tax changes over the past 5 years has left the UK courts with a conundrum. Should the average non-UK resident property owner have known about the changes to the tax legislation?

If we take the NRCGT as an example, the owner of the real estate is by definition outside of the UK. However, the NRCGT legislation imposes a strict 30 day deadline in which a taxpayer must submit an NRCGT return after the date of disposal (irrespective of whether there is any CGT due). Failure to do so leads to a financial penalty and in HMRC’s eyes, only a ‘reasonable excuse’ would remove the requirements.

HMRC set out on their website what does and does not count as a ‘reasonable excuse’. Examples of a reasonable excuse include:

  • a partner or another close relative died shortly before the tax return or payment deadline;
  • an unexpected stay in hospital that prevented you from dealing with your tax affairs;
  • a serious or life-threatening illness;
  • computer or software failure just before or while the online return was being prepared;
  • service issues with HMRC’s online services;
  • a fire, flood or theft that prevented the completion of the tax return;
  • postal delays that couldn’t have been predicted; or
  • delays related to a disability.

HMRC also set out what will not be a reasonable excuse, which includes:

  • relying on someone else to send a return, but they didn’t;
  • payment failure due to lack of funds;
  • finding HMRC’s online system too difficult to use;
  • no reminder from HMRC; or
  • a mistake on a tax return.

HMRC are keen to advertise that their success rate is over 80% in tax avoidance cases. However, when it comes to tax compliance and administrative matters, the courts have taken a much more taxpayer friendly approach.

The case of Bradshaw & Anor v Revenue and Customs [2018] UKFTT 368 (TC) (Bradshaw) is a good example of this in practice. Judge Richard Thomas was highly critical of how HMRC publicised (or rather failed to publicise) the introduction of the NRCGT. Mr and Mrs Bradshaw had relocated from the UK to Canada in 2004 retaining ownership of a UK residential property. When they came to sell the property in 2015, they were not aware of the introduction of the NRCGT and did not file an NRCGT return until HMRC notified the couple of their obligation in 2016. HMRC raised a £1,600 late filing penalty for the 450 day delay and the Bradshaws raised an appeal to the First Tier Tribunal (FTT). Judge Richard Thomas allowed the appeal, critical of HMRC’s contention that Mr and Mrs Bradshaw should have been aware of the law and the penalties were subsequently cancelled.

However, as Bradshaw only reached the FTT, the decision does not create a precedent. Until a decision concerning NRCGT filing penalties reaches the Upper Tier Tribunal, non-UK resident taxpayers should be cautious of their UK filing obligations and seek professional advice.

The UK Government is proposing to introduce another set of tax changes (effective 6 April 2019) to the UK real estate market.

The first of the changes is to extend the scope of NRCGT to disposals of all UK land held by non-UK resident individuals, thereby including commercial property within the scope of the provisions for the first time. Helpfully, the provisions are set to include a rebasing to 6 April 2019, so gains arising are likely to be fairly minimal over the next few years.

The second provision of note is that non-UK resident individuals will also be subject to capital gains tax on indirect disposals of UK land. This provision is designed to impose a tax charge where shares in an entity holding real estate are sold. A de minimis threshold applies whereby at least 75% of the gross assets of the entity must derive from UK land and the shareholder making the disposal must hold at least a 25% interest in the entity.

If you would like to discuss the taxation of UK real estate or your associated filing obligations, please contact Zoe at +44(0) 20 7534 7183 or Rozi at on +44(0) 20 7534 7186.

Vodafone & Cairn Energy – Lack of property rights

Since the days of Adam Smith, it has generally been accepted that for an economy to grow there needs to be strong protection of property rights (although Corbyn and McDonnell would beg to differ). If you cannot be certain you own something, you will not spend money improving it in case it is taken away and someone else benefits from your expenditure. Nor can you use it as collateral for a loan to improve something else. A bank will not lend against an asset you may not own! (Well they might have done before the crash, but not now.)

You have to scratch your head then as to why India is undermining property rights by enacting and enforcing retrospective legislation that threatens foreign direct investment. This legislation saw the light of day following the Vodafone case in 2012. Here, Vodafone bought Hutchison’s Indian mobile phone business, but did so by buying the Hutchison Cayman holding company that held their stake in the actual Indian trading company. So far, so normal. Non-Indian assets have been transferred even though their value does derive from an underlying Indian business (although not Indian real estate it should be noted, rather the Indian business itself).

It is this that India apparently took umbrage against. They assessed Vodafone on the basis that they should have withheld tax on the payment to Hutchison because the assets derived their value from India. Vodafone appealed as this was irrelevant. They had purchased non-Indian assets and India did not have jurisdiction. The Indian Supreme court agreed with Vodafone and there you would have thought this rather bizarre assessment from India would rest.

But no, the India government brought in retrospective legislation and assessed Vodafone again! This case is currently subject to international arbitration.

As often happens, once legislation is on the books the Tax Authority will try to use it and this is exactly what happened here. Cairn Energy plc is a Scottish headquartered oil and gas exploration and development company listed on the London Stock Exchange. It undertook an internal reorganisation in 2006 to allow it to make an initial public offering of its Indian subsidiary, and even received the Indian Tax Authority’s blessing that no Indian tax was due. That, as they say, wasn’t worth the paper it was printed on, as the Indian Tax Authority used its new power to raise a $1.5bn, plus interest, assessment on Cairn in respect of the transactions within the reorganisation.

To add insult to injury, although Cairn had been looking to sell the shares at the heart of the matter and had been blocked from doing so, India has been selling them off instead, as well as appropriating dividends due to be paid to Cairn in order to collect on the disputed tax demand.

However, hopefully sanity will prevail, as both Cairn and Vodafone have made claims for international arbitration, with the judgement in Cairn’s case due before Christmas and the hearing in Vodafone’s early 2019.

People may be wondering why anyone in the UK is getting upset about this as the UK also has the ability to enact retrospective legislation. However, here the Courts give the taxpayer protection against unlimited retrospective legislation, which the Indian courts have seemingly failed to provide.

First, the retrospective legislation can’t come as a shock. The person affected must have been aware that retrospective legislation was a possibility. Second, and possibly more importantly, where a person has won a court case, that “win” can’t be undone by retrospective legislation, which is exactly what has happened to Vodafone.

We therefore have to hope that the international arbitration panels find for Vodafone and Cairn or India will be given a green light to tax who they like, upon what they like, whenever the feel like it and any British, or rather non-Indian, investment in India has to be at risk.

If you would like to know more about the subject of retrospective taxation please contact Miles at or +44(0) 20 7534 7181 or Andrew P or +44(0) 7534 7184.

The end of the Mauritius Global Business Companies

The latest Finance Bill from Mauritius confirms that the days of the “GBC1” and “GBC2”, widely used by non-residents, are numbered. The Category 1 Global Business Licence company (GBC1) will become a Global Business Licence company (GBL) from either 1 July 2021, if their license was issued on or before 16 October 2017, and 1 January 2019, if issued after.

The main difference between the old GBC1 and the new GBL is the abolition of the deemed 80% foreign tax credit that the GBC1 received on its foreign income and that brought the effective rate down from 15% to 3%. Instead, the new GBL will receive an exemption of 80% in respect of its investment income, but not its trading income, making it less generous. The GBL will also have to meet the current Mauritian substance requirements (having Mauritian directors, accounts, premises, etc.) and these are expected to be tightened in due course.

Category 2 Global Business Licence companies (GBC2) are being abolished. As with GBC1s, those with licenses granted on or before 16 October 2017 are grandfathered until 30 June 2021 and those with licenses after, until 31 December 2018. These are being replaced by the Authorised Company. Such a company will still not be able to access Mauritius’s double taxation agreement network as it will be considered non-resident in Mauritius. However, it will need to make a return of income to the Mauritius Revenue Authority (MRA) within 6 months of its year end.

This, of course, will make it easier for the MRA to meet any exchange of information requests they may get in respect of the Authorised Company and, we believe it is fair to say, that the changes are being made with at least one eye on BEPS.

Assuming these changes are enacted, businesses with GBC1 and 2 companies within their corporate structures are advised to undertake a review and determine whether action needs to be taken to restructure.

If you want further information on investing in or via Mauritius please contact Miles at or +44(0) 20 7534 7181 or Andy M a +44(0) 20 7534 7182.

Happy Reading!

The Milestone Tax Team