Commenting on today’s judgment from the Supreme Court on the long-running “Gaines-Cooper” tax residence case, tax partner, Mike Walker, of KPMG in the UK, said:
“The taxpayers, notably Robert Gaines-Cooper, lost their appeals in today’s Supreme Court judgment which finally draws a line under the long-running legal proceedings about tax residence resulting from this case.
“Mr Gaines-Cooper and the significant number of other people with residence disputes with the tax authorities will be disappointed by today’s decision. This confirms that the law on whether someone is resident in the UK generally requires a detailed evaluation of all the factors of life style for them and their family in the UK and elsewhere. Both taxpayers argued that HMRC had helpfully set out in their guidelines a clear test that as long as a taxpayer limited days in the UK on average to no more than 90, then the right status was non-resident. The Supreme Court held that the correct interpretation of the guidance was that the 90 day test applied only to those taxpayers who had clearly left the UK and that this did not apply to the two cases considered.
The crumb of comfort for taxpayers is that the Supreme Court upheld their argument that HMRC were required to apply their published guidelines to taxpayers who clearly fell within them even if that might give a different result than the detailed analysis required by the strict law.
Perhaps most importantly since the Supreme Court was divided on what the HMRC guidelines meant, when the Government brings forward its proposals later this year for a statutory test of residence for individuals, they need to be as objective as possible with no need for HMRC guidance. KPMG favour a test simply of the number of days spent in the UK so that such cases can be consigned to the legal textbooks. After all, as the Supreme Court noted, a Committee appointed by the then Chancellor produced guidelines for determining residence in 1936 so this has perhaps now reached sufficient maturity to be implemented.
“Residence status is a relatively common tax issue. We believe that there are significant numbers of people currently involved in residency disputes with the UK tax authorities.
“In practical terms, today’s decision reinforces the need for anyone currently attempting to demonstrate to the UK tax authorities that they have made a distinct break from the UK and are no longer resident here. They need to focus on gathering evidence for the ‘multifactorial evaluation of circumstances’ the decision refers to in para 45 taking professional advice on building their case. While the Gaines-Cooper decision is unwelcome news for people in this sort of position, it is not quite ‘game over’ for them.”
*Paragraph 45 of the Supreme Court decision:
45. At last comes the moment in which to stand back from the detailed textual analysis of the booklet and to survey the wood instead of the trees. Unlike – so it seems – its successor, namely HMRC6, the exposition in the booklet of how to achieve non-resident status should have been much clearer. My view however, is that, when all the passages in it to which I have referred were considered together, it informed the ordinarily sophisticated taxpayer of matters which indeed were unlikely to come as a surprise to him, namely that:
(a) he was required to “leave” the UK in a more profound sense than that of travel, namely permanently or indefinitely or for fulltime employment;
(b) he was required to do more than to take up residence abroad;
(c) he was required to relinquish his “usual residence” in the UK;
(d) any subsequent returns on his part to the UK were required to be no more than “visits”; and
(e) any “property” retained by him in the UK for his use was required to be used for the purpose only of visits rather than as a place of residence.
He will surely have concluded that these general requirements in principle demanded – and might well in practice generate – a multifactorial evaluation of his circumstances on the part of the Revenue albeit subject to appeal. If invited to summarise what the booklet required, he might reasonably have done so in three words: a distinct break.
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KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with nearly 11,000 partners and staff. The UK firm recorded a turnover of £1.6 billion in the year ended September 2010. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have more than 138,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG International provides no client services.