Offshore service provider or criminal conspirator?

Sunday, 01 December 2013
John Harper revisits the Dimsey case and appeal of 2001, and considers its implications today.

Following an investigation into the tax affairs of a UK resident and domiciled person, Mr Chipping (C), HMRC brought an action against C and a Jersey-resident corporate service provider, Dermot Dimsey (D).

The backdrop to the case was a law enacted in the UK in 1988 that attempted to stop tax avoidance by UK residents using offshore vehicles. Section 739 of the Income and Corporation Taxes Act 1988 (ICTA 1988) dealt what was meant to be a fatal blow to such UK taxpayers’ schemes to transfer assets abroad.

I remember discussing this latest anti-avoidance measure with colleagues in Jersey at the time. There was a consensus between us that, as a result of s739 and subsequent sections, the days of UK people using ‘offshore’ to legitimately reduce their tax bill were over. As far as most of us were concerned, the Chancellor of the Exchequer of the day, Nigel Lawson, had indelibly left his mark!

In 1988 there was a consensus between us that the days of UK people using ‘offshore’ to legitimately reduce their tax bill were over

Section 739 read as follows: ‘Where by virtue or in consequence of any such transfer, either alone or in conjunction with associated operations, such an individual has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a person resident or domiciled outside the United Kingdom which, if it were income of that individual received by him in the United Kingdom, would be chargeable to income tax by deduction or otherwise, that income shall, whether it would or would not have been chargeable to income tax apart from the provisions of this section, be deemed to be income of that individual for all purposes of the Income Tax Acts.’

At the trial HMRC ran its case on the basis that the conspirators (for that is how they were described by the prosecution) had attempted to cheat HMRC of corporation tax due from the three Jersey companies. These companies, it was said, were liable to UK corporation tax because they were resident in the UK. They were resident in the UK because the management and control of their respective businesses took place in the UK.

In fact, this claim was based on another section of the same Act, so HMRC could either tax the individual concerned (C) as if the offshore entity’s income was his or, as it did in this case, claim that the companies in question were liable to UK corporation tax. There was actually no mention at the original trial of s739 of the 1988 Act. This point emerged only in the Court of Appeal.

The questions for the jury were therefore:

  • Who actually provided the mind and management of the companies?
  • Who owned them?

It emerged that as a result of former business connections in the aeronautics industry, C was asked to enter more, similar deals, with a view to making substantial profits. The eventual verdict was that although D signed the contracts and the cheques and held board meetings (with himself) in Jersey, and the name of C appeared only in relation to his role as ‘Consultant’, D had no direct knowledge of the aeronautics industry and could not possibly have sought out and negotiated the terms of the arrangements. It was C, the UK resident, who pulled D’s strings, and therefore the companies were, for tax purposes, resident in the UK.

D also insisted under oath that the companies in question were owned not by C but by two offshore trusts, the sole beneficiaries of which were respectively the Red Cross and Oxfam. This final act of perjury (leaving aside the conviction for cheating HMRC) ensured an abrupt end not only to D’s professional life in Jersey, but also to his liberty.

What lessons can we learn from this? Well, HMRC has become more aggressive and successful since those days. Additionally, and only recently, we have seen the Royal Court of Jersey allow the extradition of a local accountant to Australia to face criminal charges in similar circumstances. He too is now serving a long sentence.

But there is nothing new under the sun. The Romans had a phrase for it: legum servi sumus ut liberi esse possimus (we are slaves of the law so that we may be able to be free).

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John Harper

John Harper TEP is a part-time lecturer, delivering face-to-face courses for the STEP international diploma examinations all around the world.

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