Service on a Kind Problem

Benefit in Kind Problem
The Revenue Manuals clearly show that the Revenue does not currently share that view – e.g. Schedule E Manual at paragraphs 11440 and 11441. It has, however, been the decision of the House of Lords in R v. Allen [2001] UKHL 45 that has caused a number of professionals to review past practice. Although R v. Allen did not assist in resolving the factors that make a person a shadow director under s 168(8) ICTA 1988, it certainly underlined the general issues. The issue of directors or shadow directors being subject to an income tax charge under sections 145 and 146 ICTA 1988 by virtue of a benefit in kind enjoyed in relation to the occupation of a company’s property has been well aired over the years. It was argued by Richard Bramwell QC in Taxation 17th June 1993 p 272 and 14th March 1996 p 628 that, if one considers the ministerial statement made in the course of the Parliamentary debates on the Finance Bill in 1963 (Vol 677), the ambiguity in s 837 ICTA 1988 should be resolved by reference to that statement, which made it clear that the section was limited to land in the UK and that accordingly s 145 should have no application to land held outside the UK.
The question of a shadow director was considered in Secretary of State for Trade and Industry v. Deverell [2001] Ch 340.
It may be preferable to avoid the use of a société civile immobilière, if possible. The question of “those,….,with real influence….” appears to broaden the definition considerably. It has been argued by Henry Dyson and Keith Croft in Solicitors Journal of 15th February 2002 that in relation to an SCI, if its constitution specifically provides that nomember may be a gérant and that his powers are spelt out and that in practice such a gérant is appointed and operates independently as such, that this may be sufficient to ensure that there is no member who is a director or shadow director, so that no benefit in kind problem ensues. We do have some difficulties with this view. In practice we doubt that many clients will be prepared to follow this course and in addition it is clear that the intuitus personae nature of the members of an SCI make this very difficult to argue, even if the tests in Deverell were overcome. However, in circumstances where the benefits of its use, by allowing owners of properties in France to organise their property holdings effectively and carry out some estate planning, by turning French immovable property subject to French succession law into movable property subject to the law of the individual’s domicile, outweigh the disadvantages, then the problem of the potential benefit in kind must be faced. In addition, if the statuts of the société civile immobilière are varied to ensure that the members’ liability is both joint and several, this may give an added argument that the société civile immobilière should be regarded as transparent in the United Kingdom in addition to France, being more similar to that of a partnership than a body corporate.
The Tax Bulletins specifically refer to foreign business entities and the distribution of profits. In the circumstances of a société civile immobilière holding French immovable property for the benefit of United Kingdom taxpayers and which property is not let, if the société civile immobilière is not carrying on any business activity and not creating profits, then one may argue that as stated in Tax Bulletin issue 39 whether a société civile immobilière is transparent or opaque will not necessarily be the same in all cases and that, in these circumstances, the classification in Tax Bulletin issue 50 can be distinguished, that the Revenue’s traditional viewis still correct and that, in these circumstances, the société civile immobilière should be classified as transparent rather than opaque.

Legal Hong Kong opportunities

With all the talk of booming economies in Asia, the place that stands out from the rest is Singapore, whose economy expanded 14.7 percent last year – far and away the largest expansion in Asia.
On January 18 Singapore imposed new regulations aimed at curbing property speculation. In a statement issued by the finance and national development ministries and the central bank:
Low interest rates plus excessive liquidity in the financial system, both in Singapore and globally, could cause prices to rise beyond sustainable levels based on economic fundamentals. Therefore the government has decided to introduce additional targeted measures to cool the property market and encourage greater financial prudence among property purchasers.
Just how high is the tax increase going to be for owners who sell houses and apartments that they have owned less than four years? How does a 500 percent increase in the stamp duties tax sound? That might be drastic, but I seriously wonder to what extent it will curb the influx of money coming directly from China.
Bank loan tightening will not work even though companies purchasing residential properties can now borrow only 50 percent rather than the 70 percent mortgages they used to get. Individuals already owning one or more properties can still get a 60 percent mortgage compared with the 70 percent they used to get.
Chinese are taking money out to invest elsewhere. There are four basic ways to take money out of China:

- Every individual is permitted to take out US $50,000 per year. Let’s say someone in Shanghai needs to take out US $1 million. That person need only (assuming he has the financial wherewithal) give money to 19 other friends and relatives and have them wire money out of the country. It’s nice and easy and very legal to do it this way.
-Want to travel outside China? You are allowed to carry out CNY 20,000 each trip – plus US $5,000 (or an equivalent amount in any other currency). And while out of the country, that person can use an ATM to take out US $1,290 per day.
- Ever hear of a parallel account? If you work in China and have a business associate, customer, friend, or what have you in Hong Kong, set up a yuan renminbi account for that person who has a need for the yuan renminbi in China. You simply provide that person with the yuan renminbi while he gives you the equivalent amount in either Hong Kong dollars or other currency.
- The “mule train,” the people who, at the Zhuhai or Shenzhen border, are handed money and then cross the border, handing over those funds to someone on the other side, in Macao or Hong Kong. It happens all the time. It is a well-organized underground banking network. The People’s Bank of China estimates that as much as US $150 billion crosses the border each year.

With that amount of money, it is little wonder that cash purchases are being made in abundance, driving up property prices in Singapore, Hong Kong, New York, and London.
It’s not just property that has become scarce in Hong Kong – the mule train travelers, making their daily trips to Macao or Hong Kong, are stopping at stores before returning home to China to purchase baby formula produced from outside China. The Chinese government has been unable to regulate Chinese manufacturers in this field and Chinese parents are hesitant to purchase their locally made baby formula because of the ongoing melamine scare. Thus, non- Chinese baby formula is in demand in China and so scarce in Hong Kong that angry Hong Kong parents have called for a departure tax to be imposed on people taking supplies of infant formula out of Hong Kong.
Regarding Singapore’s goods and services tax, which became effective January 1, timing matters. Businesses on an accrual basis are now responsible for GST liability at the time of invoice issuance, regardless of whether they have shipped the goods. Since pre invoicing is routine, as is not paying for the goods until received, businesses will now have to rethink how they operate because of their new tax liabilities.