Words and Phrases - "equitable ownership"

Whether the UK taxpayer (“Hargreaves”) was liable for failure to withhold UK tax on interest paid by it to a non-arm’s length UK company (“Houmet”) turned on whether, under a domestic UK tax provision, Houmet was “beneficially entitled” to such income. As part of a tax plan to achieve group relief for such interest as well as exemption from UK withholding tax, Houmet purchased the interest coupon and the related principal one or two days before the due date, and was required to pay essentially all of the amount received by it from Hargreaves on the due date to the person from whom it had been assigned the coupon and principal.

In finding that Houmet had no beneficial entitlement to the interest, Falk LJ first stated (at paras. 49, 52 and 54):

[T]he concept of beneficial ownership is well established … . In essence, it means ownership for the benefit of the person in question … .

[C]onsistent with the fundamental requirement of ownership for the benefit of the person in question, or "ownership with benefits", a person who is the legal owner of property will not be its beneficial owner if they do not in fact have any of the benefits of ownership, such that they hold only a "mere legal shell". …

[T]he concept of "beneficial entitlement" should be construed with regard to the authorities that consider the concept of beneficial ownership. In broad terms, therefore, it can be construed as "entitlement with benefits". If the person in question would, in truth, have none of the benefits that entitlement would ordinarily bring, they will not be beneficially entitled.

She applied (at para. 70) this meaning of ““beneficially entitled” to the following findings of the First-tier Tribunal in concluding that Hargreaves’ appeal should be dismissed:

Hargreaves was unable to establish that, viewed realistically, the transactions conferred any benefit of an entitlement to the interest. There was no evidence to suggest that Houmet could have used the funds received for any other purpose [other than to pay for the assignment to it], or that it could benefit from them in any other manner. … Further, Houmet's involvement was entirely ephemeral … . There is no suggestion that Houmet was either at risk as to the amount that might be paid, such that it might not be put in funds to pay for the assignment to it, or that it might be able to benefit from the receipt being higher than anticipated.