How could the UK / SA DTA provisions impact your birthday plans?
UK / SA DTA: Meaning of treaty residence
Justin Bieber hired an island for his 21st birthday, Kate Moss partied alongside 150 guests when she turned 40, and Simon Cowell reportedly spent over £1 million on his 50th birthday party, when he invited 400 guests to a manor in Barnet, Hertfordshire. Apparently, he had a tank of mini sharks in the bathroom. Birthday parties also came up in the case of Oppenheimer v HMRC  UKFTT 122 (TC). This was a case where the court considered Mr Oppenheimer was a treaty resident under the UK / South African double tax treaty (UK / SA DTA).
What was the basis of the claim?
Mr Oppenheimer was tax resident in both countries.
In these circumstances, the ‘tie-breaker’ provisions of the UK / SA DTA determine where an individual is tax resident under the treaty (treaty resident).
HMRC claimed that Mr Oppenheimer was a treaty resident of the UK and so owed over £20 million in tax. Mr Oppenheimer disputed this on the basis that he was a treaty resident of SA (and so not liable to such UK tax).
Article 4(2) of the of the UK / SA DTA contains the ‘tiebreaker’ provisions, being:
- permanent home;
- centre of vital interests;
- habitual abode; and
Each is looked at in order of priority so that if the first is inconclusive, you look at the next, and so on.
Mr Oppenheimer argued that, whilst he had a permanent home in both states, his centre of vital interests and habitual abode were in SA for the years in question. As such he was treaty resident in SA.
What is centre of vital interests and habitual abode?
Both parties relied on the OECD Commentary on the Model Tax Convention.
For centre of vital interests the Commentary notes that,
‘regard will be had to his family and social relations, his occupations, his political, cultural or other activities, his place of business [and] the place from which he administers his property etc’.
It states that circumstances will be viewed as a ‘whole’.
For habitual abode the Commentary provides that it is somewhere the individual,
‘lived habitually, in the sense of being customarily or usually present [but] will not be satisfied by simply determining in which of the two Contracting States the individual has spent more days’.
What did the FTT consider in their decision?
The burden of proof was on Mr Oppenheimer. He needed to convince the court that his centre of vital interests was in SA and, if found to be inconclusive, that his habitual abode was in SA.
Some of the factors the FTT considered were:
- Mr Oppenheimer and his children were SA nationals;
- his property portfolio in both states, including a 2020 acre estate in Berkshire, that had been in the family for more than 100 years, and a flat in Chelsea that he received for his 18th birthday, were considered, as well as the minimal time he spent there. They also considered that he had restored their house in the UK, Folly Farm, for £36 million and employed 20 staff there;
- his properties in SA, which he had invested in significantly, and his wife had assisted with by designing the interiors;
- his wedding being held in the UK at Waltham Place, and the subsequent funeral of his wife also being held in the UK at their house, Folly Farm;
- his employment history and the fact that he was employed by SA companies;
- his education in the UK at boarding school and Oxford University, and his children’s education in both the UK and the US;
- his completion of National Service in SA;
- other non-work related activities they considered were the fact that he had a helicopter licence in both states, that he attended his father’s annual shoot in Scotland, his golf club memberships in SA and the UK, his SA cricket team, and other sport memberships;
- his principal attendance with a doctor and dentist in SA;
- he never voted in the UK, but did vote in SA;
- the fact that only 48% of Mr Oppenheimer’s overall employment income was from a UK source and that he had a ‘strong history of philanthropic activities’ in SA; and that
- he celebrated his 40th and 50th birthdays in SA, with smaller celebrations in the UK.
What was the result?
The Court found in favour of Mr Oppenheimer. He was found to be a treaty resident of SA despite the fact that he actually spent more days in the UK than in SA (in the relevant period).
In reaching this decision, the Court commented that he had
‘a longstanding and ongoing commitment to the RSA and an investment both in terms of his time, money…and his emotions in its future as a nation and as an integral part of Africa’.
In regards to his habitual abode, the FTT noted that Mr Oppenheimer’s,
‘stays in the RSA could not be described as transient…it was a normal, regular and important part of his life throughout the Relevant Period’.
So when determining an individual’s centre of vital interests, the Court will consider a wide range of circumstances across an individual’s lifetime, both economic and personal. For the latter this includes where you have your birthday party and who you invite!
In this case, the Court considered Mr Oppenheimer’s 40th birthday where he booked the whole of Tswalu Wildlife Reserve for his friends and their children, most of whom were from SA, and that he also celebrated at Isbindi Wildlife Lodge with almost 300 people. In London he only celebrated with 55 people. For his 50th birthday, Mr Oppenheimer celebrated again at Tswalu with a large party in Johannesburg for over 600 people. In the UK he had a much smaller party for only about 200 people.
So, celebrate wisely…