Non Gamstop Sports Betting SitesNon Gamstop UK Betting SitesNon Gamstop CasinosNon Gamstop CasinosNon Gamstop CasinosNon Gamstop Casinos
The Professional
Contractors Group
Join the PCG
  home / judicial review / no.14    
Index of Archive
 
 
 
 
 
 

Update No.14 - Tuesday 20 March 2001 morning

Plender started by answering some of the judge's questions from yesterday. The reason for the "change of attitude" (judge's words from yesterday) between the two RIAs was that the first IR35 imposed the burden of collection of tax and NICs on the client, which it was felt would make the outsourcing of services to PSCs commercially untenable; the second IR35 merely made operating as a PSC broadly fiscally neutral so this commercial pressure no longer applied.

He then discussed the 90,000 figure (companies "captured" by IR35) and reiterated the methodology used in its calculation. The judge said that since not all those affected would be captured, did this imply a figure of, say, 120,000 affected businesses of which 90,000 would be captured. Although these were clearly arbitrary figures plucked from the air by the judge Plender gratefully accepted them as representing his position.

Plender then tried to assert that the assessment manual inconsistencies picked up by the judge yesterday didn't look so bad if the statements were "taken in the full context of the manual as a whole". The judge wasn't convinced (and if he was honest neither was Plender).

There was then Yet Another Discussion on the competition comparator. Plender returned to his example of himself "in competition with" Freshfields (see yesterday's reports). The judge still wasn't buying his argument. The judge cited a Charlotte who was half in and half out of IR35. Clearly IR35 would affect her and apply an upward pressure on her rates, so she could afford to remain in business on her own terms. It was not necessary for competition to be present between small and large companies every single time work was sought; it was sufficient that small and large companies compete from time to time. This was clearly the case; but this is a matter of fact and not law so it doesn't necessarily impact the outcome of the case. Plender didn't press his point. The judge remarked that if the Revenue don't kill the PCG State Aid argument on specificity, the Charlotte example was clear distortion of competition within the meaning of the State Aid doctrine.

Plender then turned to Freedom of Movement.

There were three distinct freedoms to consider: the freedom of movement of workers, establishment and services. The freedom of movement of workers (Article 39) includes the right to accept an offer of employment "actually made" within any Member State (of the EU), the right to move freely through Member States for this purpose; the right to stay in Member States according to the provisions laid down by that state; and the right to remain in the Member State after the employment is finished. There is case law extending these rights to include a right of freedom of movement to seek employment. "Employment" does include "engagment"; but the applicability of this article to the current case was questionable. Plender's submission was that the best Barling could do was argue that it applied to the exceptional case of, say, a 5-person company operating across state boundaries. Plender said that Barling submitted that IR35 is not discriminatory in the sense of this article, nor does it place obstacles on movement with regard to employee-style workers.

Article 43 concerns establishment: the right to be self-employed subject to Member States' law; a prohibition on the restriction of establishment; the right to establish subject to conditions laid down in Member States for their own nationals. There was a brief discussion in which the judge and Plender agreed that A43 was probably not relevant to this case but it was no particular skin off Barling's nose if it wasn't. Article 49 concerns services: the right of someone established in one Member State to supply services in all Member States. Plender contended that it was unlikely that such a person would be caught by IR35; there would be "some but not many". An ECJ case provided that the rights under this article extended to include the right to receive services. The judge and

Plender discussed A39 and agreed it was intended to apply to workers or employees, not independent contractors (in the sense of a PSC). Plender cited the case of patent supervision in Germany. There was a German law saying that someone could only supervise patents in Germany if they took certain exams; so, for example, a London-based patent expert could not provide service over the internet to a German client unless they first went to Germany and passed the relevant exams. This was a case where Freedom of Movement had been unlawfully restricted. The point Plender made was that this rule was a prohibition; IR35 is not. Plender contended that a relevant restriction must deprive the provision of services of all practical effectiveness.

The judge said in this case actually there was no prevention: the law in question simply made it harder (as you had to pass the exams - which the judge felt "could not be too onerous"!). However the impediment in this case was clearly much more severe than simply "you must pay more tax".

Plender then addressed Freedom of Movement (hereafter FoM) for workers. He said Barling's case on this point related to access to market. There was some discussion on the existence of an ancillary right not to be taxed too heavily (sic) but the judge concluded that he couldn't see how Barling would get in on A39 (with Plender's agreement - obviously). He said he would take "some persuading" to change his mind on this. Barling rose briefly to state that he was not at all alleging discrimination on the grounds of nationality; the discrimination he was addressing was between businesses. Doubtless Barling will speak further to this point in his reply.

Plender turned to Establishment. He said normally FoM on establishment is in the context of discrimination, but not exclusively. He said that establishment may involve other freedoms but such freedoms would normally result in subjection to local rules. The judge characterised this as "Local Rules OK". Plender said (and cited case law to support his notion) that a rule which on the face of it was non-discriminatory needed to have a "disparate" impact to fall foul of FoM rule on establishment. For example, he cited a case with a disparity between those living in Belgium and those seeking to establish themselves in Belgium. He said that this is entirely different from the alleged disparity between small and large companies with respect to IR35. The application of FoM in this context necessarily involved "trans-frontier" situations with geographically disparate application, and not situations where one Member State had less favourable tax laws. Plender said that there were no established cases of this kind of FoM which did not have this trans-frontier element.

The judge said and Plender agreed that he had strayed in his discussion from establishment to services.

There was a discussion on justification: in this case Plender would cite "fiscal cohesion" - the taxation of employees as employees (for a discussion of what justification means in the context of this case, please see previous updates).

Plender said that not only did there not exist any case where there was an obstacle which was non-discriminatory and had no trans-frontier effects with regard to a fiscal provision but there was expert authority (cited) saying there couldn't be.

There was some discussion of the St Desmos case which the judge said was Barling's strongest case (this is the Greek tourist guide case - see earlier reports for more detail). Plender agreed that on establishment, "local rules OK" applies but on services where a local rule is (as in this case) unreasonable it may not. Plender said that the St Desmos case involved a law which was a clear prevention. IR35 is not a prevention in this sense so the case was not applicable.

The judge discussed this case in the light of the patent law case and IR35. The patent law case was not prevention, as St Desmos was; it was however a hindrance, but far more draconian than IR35.

Plender said for FoM to apply, the contractor must be established abroad but ordinarily resident in the UK (i.e. in UK for >186 days in a tax year); and IR35 must be substantially different from the local law where the contractor is established. There was another hypothetical case where FoM could apply where the contractor is established in the UK and "prevented" from providing services overseas by IR35. The judge said he'd just thrown Barling a lifebelt; Plender said yes and now I'm going to puncture it. There is nothing in IR35 which has disparate bearing on the provision of services between the UK and another Member State. So FoM can't be proved in this latter case.

Plender reiterated that St Desmos involved a law that was a prohibition. IR35 isn't. The judge said it wasn't a restriction on the degree of disagreeability but an outright ban and Plender agreed. There was some technical discussion of other cases which I shall not reproduce here.

There was then a discussion on the difference between justification for State Aid and FoM (see earlier updates for an explanation of what this means). Plender said that Barling's assertion that an anti-avoidance measure could not be justified because it is such" under FoM was founded on a case in which there had been discrimination. He therefore questioned the applicability of that case to this one.

Once State Aid is proved, the National Court cannot in any case decide justification: that's for the European Commission.

There was some discussion on timings. Plender has a plane to catch and must leave court at 4; however the judge is insistent on finishing the case today. He indicated that he will reserve judgement and possibly deliver it next week, other matters allowing. The judge will hear any application for anyone else from the Revenue side to speak during Barling's reply in Plender's absence (and will allow it).

Simon Juden