The Gazette 1985

APRIL 1985

GAZETTE

Income Tax, Corporation Tax, Capital Gains Tax: The Liability of Solicitors as Agents for Non-Resident Clients

by Thomas S. McCann, S.C.

The Society has obtained an opinion from Mr. Thomas S. McCann, S. C. on the above topic which has caused concern to practitioners. The following is a summary of his opinion. It should be noted that the opinion does not relate to Capital Acquisitions Tax under which a solicitor may have a secondary liability.

T HERE has been considerable concern in the profession about the suggested liability of Solicitors as agents for tax liabilities of their clients particularly Income Tax and Capital Gains Tax. The main area of concern is the liability imposed on an Agent under Sections 200 and 201 of the Income Tax Act 1967 in respect of profits or gains and the application of these Sections under Schedule iv of the Capital Gains Tax Act, 1975. The provisions of sections 200 and 201 were first enacted in section 41 of the Income Tax Act 1842 which provided that an assessment might be made on a non- resident person in the name o f " any factor, agent or receiver having the receipt of any profits or gains arising as herein mentioned and belonging to " the non- resident principal. In order to be liable the agent had to be in receipt of profits or gains. This requirement was removed by section 31 of the Finance Act, 1915, which, however, contained a provision in terms similar to section 205 of the Income Tax Act, 1967. As the law now stands the general proposition is that any agent is liable for the income tax of his foreign principal whether or not the agent has received the profits. However, this liability is restricted by section 205 so that an agent "not being an authorised person carrying on the regular agency of the non-resident person" is not liable to be assessed in respect of the tax of his principal. It should be kept in mind that sections 200 and 201 of the Income Tax Act 1967 were specifically drafted in order to render agents liable to tax in respect of income which they had not received. As that liability could give rise to an injustice relief was afforded by section 205 of the Act. The difficulty in considering the relief under section 205 is to determine what is meant by "an authorised person carrying on the regular agency of the non-resident person". The question has been the subject of much judicial consideration and the leading dicta are to be found in the cases of Gavazzi -v- Mace 10 T.C. 1968 and Neilsen Anderson & Co. -v- Collins 13 T.C. 91. In the latter case Scrutton L.J. in the course of his judgment said at P. 121 of the report. "In my view the words 'not being an authorised person carrying on the non-resident's regular

agency' apply to the whole of the preceding descriptions and the contrast intended to be drawn is between casual employment, temporary employment, or a permanent agent who is there as representing the foreigner." While there are clearly fiduciary relations between a solicitor and his client the basic relationship is that of principal and agent. Accordingly, sections 200 and 201 apply prima facie, to solicitors as agents. However, in most cases, the nature of the retainer of a solicitor would prevent him from being an authorised person carrying on the general agency of his client. The nature of the retainer was considered in the Saffron Walden Second Benefit Building Society -v- Raynar, 1880 14 Ch.D. 406 in which Bramwell L.J. said in the course of hisjudgment at P.415: "As Lord Justice James has said, there is no such thing as a standing relation of a solicitor to a man. A solicitor does not stand in a permanent relation to his client as a chaplain does to a nobleman or body having a chaplain. A man is a solicitor for another only when that other has occasion to employ him as such." Each case must, of course, depend upon its own facts. It would seem highly unlikely that a solicitor who acted merely as a solicitor could be held to be an "authorised person carrying on the regular agency" of his client. Even if a solicitor acts with frequency for a client he will not be an authorised person carrying on his client's regular agency if his activities are confined to carrying out specific transactions for his client and he is not either a business agent or a land agent or some other form of general non- solicitor, agent of his client. There does not appear to have been any reported case in which a solicitor has been held to be liable to be assessed qua solicitor under section 200 of the Income Tax Act, 1967, or any of its predecessors or its English equivalent. The reason is very probably due to the principle that a solicitor does not hold an office — he is not the general agent of his client. The authority of a solicitor in conveyancing matters, for instance, is limited and he is the agent of his clients only in connection with legal work arising out of the transactions in which they engage. A solicitor who acted for a foreign building

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