A cautionary tale of wide judicial latitude in statutory construction
Although some of the venerable axioms of revenue law have endured a good deal of refashioning in recent decisions, the essential proposition that the taxpayer may only be taxed by clear words of statute should nevertheless remain sacrosanct. Not so, said the FTT in Wintershall (E&P) Ltd v HMRC (TC03452 – 31 March 2014). In dismissing the taxpayer’s appeal, it held that for the purposes of the petroleum revenue tax regime, a capital gain arising from the disposal of an interest in a North Sea oilfield was subject to the supplementary charge in ICTA 1988 s 501A.
To arrive at this result, the learned tribunal had to resort to a little lexical alchemy. It read ‘ring fence profits’, which under ICTA 1988 s 502 was defined to include capital gains, into the quite different and otherwise undefined term ‘profits of a ring fence trade’, which was the computational basis for the supplementary charge, asserting that the statutory scheme demanded it. Now it is evident that trading profits have a precise fiscal meaning, which does not extend to capital gains; hence, the necessity to bring such gains within the definition of ‘ring fence profits’. But when the draftsman inserted ICTA 1988 s 501A, he had the option of imposing the supplementary charge on the basis of either ‘ring fence profits’ or ‘profits of a ring fence trade’. In electing for the latter, it should have been obvious that he did so because he did not wish the charge to apply to ‘ring fence profits’ (so defined). One has to look no further than FA 2012 s 182, which substituted ‘ring fence profits’ for ‘profits of a ring fence trade’ in the supplementary charge provision now rewritten to CTA 2010 s 330. Inexplicably, the relevant explanatory note identified this as a clarificatory measure. Yet that should have carried no weight, since it is a trite point that explanatory notes are no authority at all.
Nevertheless, the FTT seems, like the writer of the aforesaid note, to have formed a view of how the supplementary charge should always have operated, and worked backwards from there, deploying the Queen of Hearts’ approach of sentence first, verdict later. Whereas it is uncontroversial that statutory provisions should be read with a view to their context, the FTT has endorsed the alarming approach of allowing the presumed context to override the clear words of the draftsman.
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A cautionary tale of wide judicial latitude in statutory construction
Although some of the venerable axioms of revenue law have endured a good deal of refashioning in recent decisions, the essential proposition that the taxpayer may only be taxed by clear words of statute should nevertheless remain sacrosanct. Not so, said the FTT in Wintershall (E&P) Ltd v HMRC (TC03452 – 31 March 2014). In dismissing the taxpayer’s appeal, it held that for the purposes of the petroleum revenue tax regime, a capital gain arising from the disposal of an interest in a North Sea oilfield was subject to the supplementary charge in ICTA 1988 s 501A.
To arrive at this result, the learned tribunal had to resort to a little lexical alchemy. It read ‘ring fence profits’, which under ICTA 1988 s 502 was defined to include capital gains, into the quite different and otherwise undefined term ‘profits of a ring fence trade’, which was the computational basis for the supplementary charge, asserting that the statutory scheme demanded it. Now it is evident that trading profits have a precise fiscal meaning, which does not extend to capital gains; hence, the necessity to bring such gains within the definition of ‘ring fence profits’. But when the draftsman inserted ICTA 1988 s 501A, he had the option of imposing the supplementary charge on the basis of either ‘ring fence profits’ or ‘profits of a ring fence trade’. In electing for the latter, it should have been obvious that he did so because he did not wish the charge to apply to ‘ring fence profits’ (so defined). One has to look no further than FA 2012 s 182, which substituted ‘ring fence profits’ for ‘profits of a ring fence trade’ in the supplementary charge provision now rewritten to CTA 2010 s 330. Inexplicably, the relevant explanatory note identified this as a clarificatory measure. Yet that should have carried no weight, since it is a trite point that explanatory notes are no authority at all.
Nevertheless, the FTT seems, like the writer of the aforesaid note, to have formed a view of how the supplementary charge should always have operated, and worked backwards from there, deploying the Queen of Hearts’ approach of sentence first, verdict later. Whereas it is uncontroversial that statutory provisions should be read with a view to their context, the FTT has endorsed the alarming approach of allowing the presumed context to override the clear words of the draftsman.
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