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ARAFAG, karen B.

LLB 04301 International Tax: 10am-12noon

October 16, 2012

I. International Case: Shepherd v. Comm'rsl [2006] STC 1821


Subject Matter: Residence - 'Occasional residence abroad' - Taxpayer living in United Kingdom intending to retire abroad - Taxpayer spending some time abroad, some time in United Kingdom, and some time on overseas flights while still employed as airline pilot - Taxpayer renting accommodation abroad - Whether taxpayer resident in United Kingdom Whether taxpayer in United Kingdom 'for some temporary purpose only' Income and Corporation Taxes Act 1988, ss 334(a), 336(2). FACTS

Ian Hugh Shepherd, herein appellant sought to move his residence to Cyprus coterminously with his retirement so that his pension from British Airways would be subject to tax in Cyprus at lower rates than those applicable in the United Kingdom. The appellant had visited Cyprus and had acquired a flat in Larnaca in 1998. He did in fact join the Cyprus Offshore Yacht Club and the Crusader Gliding Club. However, he retained his membership of the British Hang Gliding Association, the Royal Yachting Association and the British Airways Yacht Club. The appellant, who was a pilot for British Airways, had a house in Wokingham, which he had inhabited with the woman who was his legal wife. The appellant had, however, become involved with an air stewardess with whom he had a relationship from 1996 to 1998. He and his wife had agreed to live separate lives, albeit in the same house. They were not divorced as neither wanted to remarry. When the appellant was in Wokingham, Mrs Shepherd was prepared to cook his meals, and she was also the person whom British Airways were told to contact in the case of an emergency. The court also analysed Mr Shepherds banking arrangements. He had a joint bank account with his wife and a high interest savings account at the same bank in this own name. He had a bank credit card and a building society credit card, and Mrs Shepherd also had a credit card on both of these accounts. His salary was paid into the joint bank account which was used by both his wife and himself. Even after October 1998, when the appellant acquired his flat in Larnaca, his salary was still paid into the joint bank account in the United Kingdom and he continued to pay the monthly mortgage payments on the house in Wokingham from the joint bank account. The mortgage was fully paid when he retired in April 2000. The house was not sold, and his wife and son continued to live there. Mr Shepherd did not inform the bank in the United Kingdom that he had moved to Cyprus. He retired from British Airways on the 22 April 2000, and his first pension payment was made on 31 May 2000 directly into his bank account in Cyprus.

Mr Shepherds argument was that even though he continued to visit the United Kingdom, Cyprus was where he had his base. He was in the United Kingdom for temporary purposes only and not with the intention of maintaining his residence there, and so the question of his residence had to be decided without regard to the living accommodation available to him in the United Kingdom. The Revenues argument was that all the relevant factors pointed to the conclusion that there had been no distinct break in residence in October 1998. After that date he had remained in the United Kingdom for a settled purpose, namely to continue to perform the duties of his employment and to continue to see his wife, family and friends. ISSUE Whether, in the year of assessment 1999-2000: 1. the appellant was resident and ordinarily resident in the United Kingdom within the meaning of Case I or a resident in the United Kingdom within the meaning of Case III.

HELD The taxpayer had not discharged that burden. The commissioner had accurately set out the legal test she was required to apply in respect of s 336(2) and she had reached a conclusion which she had been entitled to reach on the facts. Accordingly, there had been no error of law and the taxpayer's appeal would therefore be dismissed. The question whether the appellant was resident and ordinarily resident in the United Kingdom in the year 1999-2000 is a question of degree. Taking into consideration all the evidence presented and the facts established, especially having regard to the appellant's past and present habits of life, the regularity and length of his visits in the UK, his ties with that country, and the somewhat temporary nature of his attachments abroad, the court had reached a conclusion that at least until 5 April 2000 he continued to be resident and ordinarily resident in the United Kingdom. He dwelt permanently there and it was where he had settled or usual abode and so he was resident there. He resided in the United Kingdom continuously as part of his everyday life; his residence was part of the regular and habitual pattern of his mode of life and it persisted despite temporary voluntary absences to fly in the course of his employment, or to go to Cyprus, or to go sailing, or to visit Europe; his residence in the UK also had a settled purpose and so it was concluded that the appellant was ordinarily a resident of UK.

COMMENT: Whether or not applicable in the Philippines Based on the judgment above, the case is applicable in the Philippines falling under Section 22 of RA 8424, paragraph (e) The term 'nonresident citizen' means: (1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. (2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis.

(3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. (4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. (5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section. Following the abovementioned provisions of the NIRC he is considered a non-resident citizen of this country; in the case at bar, absences of the appellant in Cyprus after October 1998 were temporary absences from the United Kingdom just the same as his absences when flying in the course of his duties. Such would fall under paragraph (4) of RA 8424 because his presence in the United Kingdom was not casual or temporary, but substantial and continuous. Moreover, He had a fixed residence in the United Kingdom and did not have to stay in hotels. Wokingham was his settled and usual abode where he had lived for a considerable time, and that there had been no distinct break in October 1998. Accordingly, the judge held that Mr Shepherd had not been in the United Kingdom for temporary purposes only. He had been in the country to continue to carry out his permanent employment and accordingly, his residence in Wokingham had a settled purpose, and he was ordinarily resident in the United Kingdom. To correlate it with Section 25 which states that: A nonresident alien individual engaged in trade or business in the Philippines shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual, on taxable income received from all sources within the Philippines. A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a 'nonresident alien doing business in the Philippines'. Section 22 (G) of this Code notwithstanding.

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