HMRC to face legal action over Qrops revision
Law firm Dorsey and Whitney is planning a legal action against HM Revenue and Customs on behalf of more than 120 investors in a Singapore pension scheme, after they were hit with a 55 per cent retrospective tax charge following the scheme’s removal from the HMRC approved list.
In a letter to 122 scheme members, the law firm argues that HMRC’s retroactive declassification of a Singapore-based Rosiip, which was previously on the approved list of qualifying registered overseas pension schemes, breaches human rights as well as European and British law.
The letter, seen by FTAdviser, is addressed to scheme members who invested their UK pensions into the Rosiip scheme while it was listed as a Qrops, mostly in the tax year 2007-08. According to the firm, HMRC removed Rosiip from the list of Qrops in May 2008.
Because HMRC says the removal takes effect from the date the ex-Qrops was originally registered, any transfer made from a UK pension fund to Rosiip even pre-May 2008 now counts as an unauthorised payment.
This means savers will retroactively be taxed 40 per cent on their pension plus a 15 per cent penalty.
The trustees of the scheme, Equity Trust (Singapore) - now TMF Trustees Singapore - challenged Rosiip’s removal but did not succeed. A further application to appeal is pending.
Because transfers to Rosiip constitute a movement of capital between an EU and non-EU country, a tax authority cannot raise an assessment under these circumstances, the letter says.
It continues that human rights law is broken if assessments are raised in circumstances where a taxpayer could not have foreseen that as a consequence of their actions they would later be subject to a tax charge or penalty.
The firm therefore argues that listing Rosiip as a Qrops gave taxpayers a legitimate expectation that transferring money to the scheme would not attract an unauthorised payment charge.
Under EU law, investors have the legal right to certainty, the law firm says. Under English public law, such an expectation extends to an expectation that tax treatment will not be changed retrospectively.
The new assessment by HMRC breaches these statutory duties, Dorsey and Whitney asserts.
The company has now been contacted by 12 taxpayers and has proposed combining proceedings into a group action.
HMRC had no comment to make on the matter.