Justice of the Supreme Court, Lord Hodge, has set out the RFC 2012 judgment in its context within the developing case law on the interpretation of taxing statutes.
Delivering the Edinburgh Tax Network Annual Lecture at Parliament House, Edinburgh, entitled “The RFC case, tax avoidance schemes and statutory interpretation: offside goals, yellow cards and own goals”, Lord Hodge analysed the case law informing the RFC judgment.
He said: “The central issue in the appeal was whether it was necessary that the employee should receive, or at least be entitled to receive, the remuneration for his work in order for the reward to amount to taxable earnings.
“The court adopted a purposive interpretation of the relevant provisions of the tax legislation. Because of the timing of the payments, the court had to consider the provisions of the Taxes Act 1988 and also those of the Income Tax (Earnings and Pensions) Act 2003. For the sake of simplicity and looking to the future, I will refer only to the provisions of the latter statute, because whatever was an emolument under the Taxes Act was earnings under the ITEPA.
“The issue in this appeal differed from some of the earlier appeals. We were not concerned with circular schemes or linear schemes in which steps which had no commercial justification had been inserted in an attempt to exclude the payments from the scope of the taxing provision. The focus instead was on the payment of money as remuneration and its receipt by the trustee. What happened to the money once it became an asset of a sub-trust was not the principal issue.
“The question was whether the recipient of the remuneration had to be the employee, unless he voluntarily redirected his entitlement to another person. The fatal flaw, or own goal, of the scheme was the assumption that the answer to that question was ‘yes’. “