The Royal Court has overturned a £2.42 million tax bill against a company that sold shares in a Jersey property business – and in doing so, acknowledged that the island’s law may have a “loophole through which the ingenious taxpayer can pass”.
The case concerned a business named only in a recently published judment as ‘B Limited’, which bought all the shares in another company in 2015 for £7.2m.
This company owned and developed a large St Helier office block.
In 2019, B Limited then sold its shares for £39.6m.
The Comptroller of Taxes treated the £32m gain as taxable part of the Income Tax Law which covers profits from property development.
The assessment relied on an article which says certain shareholdings giving an “exclusive right to occupy” property can be taxed like direct property disposals.
While the Comptroller argued this allowed him to tax B Limited’s sale, the Royal Court Court disagreed.
It found that that owning all the shares in a company does not itself give a shareholder the legal right to occupy its property. The particular article the Comptroller had referred to, it said, was aimed at share transfer flats anyway, not general company ownership of real estate.
In his judgment, Commissioner Sir William Bailhache, who had been sitting with Jurats Le Cornu and Powell, said: “In my judgment, there is nothing absurd in the legislation as drafted containing what some might think to be a loophole through which the ingenious taxpayer can pass to avoid an assessment.
“There are many professional advisers who specialise in seeking such things.
“Nonetheless, unless what is done falls foul of the anti-avoidance provisions in the Law, the consequences are as they are.”
The ruling stated that, under current legislation, profits from selling shares in property-holding companies cannot be taxed as direct land disposals unless the shares themselves confer occupancy rights.
Sir William continued in the judgment: “It may be an inconvenient result for the Comptroller but it lies within his hands to persuade the Treasury Minister to propose an amendment to the legislation.”
The appeal against the bill was allowed, and the £2.42m assessment set aside.