Factual and Procedural Background
This appeal arises from final closure notices issued by the tax authority to the Appellant under the Taxes Management Act 1970 concerning several UK tax years between 2010/11 and 2016/17. The notices amended the Appellant’s self-assessment tax returns based on remittances made by a family trust during the Relevant Period. The Appellant contended that he was treaty resident in South Africa rather than the UK, contrary to the tax authority’s position. The appeal was heard by the First-tier Tribunal (Tax Chamber) following an enquiry opened in 2013 and subsequent assessments and closure notices. The parties agreed that the Relevant Period for treaty residence determination was 2 April 2010 to 5 April 2017. The Appellant appealed the closure notices but did not appeal certain discovery assessments, which were suspended on appeal. The hearing took place via video conference over several days in June 2021.
Legal Issues Presented
- For each tax year in the Relevant Period, whether the Appellant’s centre of vital interests was in the UK or South Africa, determining his treaty residence under Article 4(2) of the UK/South Africa Double Taxation Convention (DTC).
- If the Appellant was treaty resident in the UK, whether the assessments were excessive, noting that quantum would be remitted for negotiation if residence was found in the UK.
- If the centre of vital interests could not be determined, whether the Appellant had an habitual abode in South Africa or the UK, affecting treaty residence status.
Arguments of the Parties
Appellant's Arguments
- The Appellant argued that his personal and economic relations were closer to South Africa throughout the Relevant Period, making him treaty resident solely in South Africa under Article 4(2)(a) of the DTC.
- If the centre of vital interests could not be determined, he claimed to have habitual abodes in both South Africa and the UK, and as a South African national, he would be treaty resident solely in South Africa under Article 4(2)(c).
- He emphasized permanent and immutable ties to South Africa, including family roots, economic interests, philanthropic activities, and social relations.
- The physical presence in the UK was primarily for the limited purpose of educating his children.
- He contended that detailed day counts were not relevant to determining treaty residence and that the focus should be on the broader connections and relationships.
Respondent's Arguments
- The tax authority argued that the Appellant’s centre of vital interests was in the UK because he and his immediate family lived there continuously from 2007 onward.
- Despite South African nationality and some connections, the Appellant’s settled routine, family life, and work were predominantly UK-based during the Relevant Period.
- The tax authority emphasized day counts and the Appellant’s physical presence, arguing these reflected his choices and daily life.
- If the centre of vital interests could not be determined, the Appellant’s sole habitual abode was in the UK.
- The tax authority challenged the absence of detailed day counts for later years and argued that offshore family wealth structures did not constitute economic ties to South Africa.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Cooper v Cadwalader [1904] EWHC Exch TC_5_101 |
Interpretation of "permanent home" and residence concepts |
Referenced to support understanding of permanent home availability under treaty rules |
| R v Barnet LBC ex p Shah [1983] 2 AC 309 |
Definition of "ordinary residence" and "habitual abode" |
Applied to understand the habitual abode test and ordinary residence as part of residence analysis |
| Hertel v The Minister of National Revenue (1993) 93 DTC 721 |
Centre of vital interests is not easily moved and importance of deep roots |
Used to support the Appellant’s argument about permanence of ties to South Africa |
| Gaudreau v Canada (2004) 7 ITLR 640 and 2005 FCA 388 |
Effect of limited moves on centre of vital interests |
Referenced regarding the significance of limited moves and permanence of centre of vital interests |
| Yoon v The Queen [2005] TCC 366, 8 ITLR 129 |
Treaty residence as an annual objective test |
Supported the Respondent’s position that treaty residence can change year to year |
| Hankinson v HMRC [2009] UKFTT 384 (TC) |
Residence and centre of vital interests in cases of split interests |
Noted as obiter but relevant to the complexity of determining residence |
| Yates v Commissioners v Revenue and Customs Comrs [2012] UKFTT 568 (TC), 15 ITLR 205 |
Importance of spouse’s home in determining centre of vital interests |
Considered in relation to the Appellant’s family ties |
| Mackay v HMRC [2008] UKUT 378 (TCC), [2019] STC 83 |
Annual determination of treaty residence |
Supported the view that treaty residence is determined annually on objective facts |
| Pike v Commissioner of Taxation [2019] FCA 2185, 22 ITLR 474 and [2020] FCAFC 158, 23 ITLR 293 |
Composite test for personal and economic relations |
Adopted by the Tribunal as the correct approach to centre of vital interests |
| Fowler v HMRC [2020] UKSC 22, [2020] 1 WLR 2227 |
Interpretation of treaties and use of OECD Commentaries |
Guided the Tribunal’s interpretation of the Double Taxation Convention |
| Anson v Commissioners for HMRC Revenue & Customs [2015] UKSC 44 |
Interpretation of tax treaties in accordance with Vienna Convention |
Applied for principles of treaty interpretation |
| HMRC v Smallwood [2010] EWCA Civ 778 |
Principles of treaty interpretation and residence |
Referenced for interpretative principles |
| Kimathi & Others v The Foreign & Commonwealth Office [2018] EWHC 2066 (QB) |
Assessment of factual evidence and witness credibility |
Used to guide approach to documentary and witness evidence |
Court's Reasoning and Analysis
The Tribunal undertook a detailed and fact-intensive analysis of the Appellant’s personal, economic, social, and family ties to the UK and South Africa throughout the Relevant Period. It carefully evaluated witness testimony, documentary evidence, and day count data, noting that the Appellant had permanent homes and habitual abodes in both States. The Tribunal applied Article 4(2) of the UK/South Africa DTC, following the interpretative principles of the Vienna Convention and relevant case law, including the OECD Commentary on the Model Tax Convention.
The Tribunal recognized the composite nature of the "centre of vital interests" test, requiring consideration of family, social, occupational, political, and cultural ties as a whole rather than focusing solely on presence or physical location. It found that the Appellant’s personal and economic relations were deeply rooted and stronger in South Africa, supported by his extensive involvement in family businesses, philanthropic activities, and social networks based there. His presence in the UK was largely driven by the temporary purpose of educating his children and supporting his wife, and did not sever his ties to South Africa.
In considering habitual abode as a secondary test, the Tribunal found that the Appellant had habitual abodes in both countries, with his stays in South Africa forming part of the settled routine of his life despite spending more time physically in the UK. Given that he was a South African national, this also supported treaty residence in South Africa under the tiebreaker rule.
The Tribunal rejected reliance on day counts alone as determinative of treaty residence, emphasizing the broader qualitative connections. It also found that offshore ownership structures did not negate the Appellant’s economic relations with South Africa, as his involvement in managing family wealth and business interests was substantial and centred there. The Tribunal assessed the credibility and weight of the witnesses, noting some partisan evidence but overall found the Appellant and his father to be credible and straightforward.
Holding and Implications
The Tribunal’s final decision was that the Appellant’s personal and economic relations were closer to South Africa than to the UK throughout the Relevant Period. Consequently, the Appellant was deemed treaty resident solely in South Africa under Article 4(2)(a) of the UK/South Africa Double Taxation Convention.
The appeal is allowed.
As a result, the tax assessments based on UK treaty residence are set aside. The decision directly affects the parties by determining the Appellant’s treaty residence status and associated tax liabilities for the Relevant Period. No broader precedent beyond the facts of this case was established.