Foreign service deduction following change of employer
In J Gedir v HMRC [2016] UKFTT 188 (15 March 2016), the FTT found that an employee who had changed employer was not entitled to a foreign service deduction (ITEPA 2003 s 413) relating to his first employment, on termination of his employment with the second employer.
Mr Gedir was employed by Bear Stearns, the American investment bank which was acquired by JP Morgan in August 2008. He received an offer from JP Morgan to continue in his previous role at that bank, which he accepted. For reasons unclear to the FTT, Mr Gedir took up employment with Goldman Sachs instead of JP Morgan on 1 September 2008. He left Goldman Sachs in 2010 and received a termination payment of £627,965, which he reported in his 2010/11 tax return, claiming foreign service relief in relation to the period when he had been employed by Bear Stearns.
The issue was whether Goldman Sachs was a ‘successor’ of Bear Stearns for the purpose of ITEPA 2003 s 404(1)(c); this depended on whether the risk arbitrage business unit, Mr Gedir had been a part of, had been transferred to it. The FTT felt that the concept of ‘economic entity’ used in the TUPE regulations was relevant. It found that there was insufficient evidence that the unit had been transferred as an identifiable economic entity to Goldman Sachs.
On the basis that the foreign service deduction was not available, Mr Gedir had submitted an incorrect return and HMRC had imposed a penalty. The FTT found however that a taxpayer who has consulted an advisor he reasonably believed to be competent and experienced in the relevant field, and who had been advised that his tax return may properly completed on the basis of a particular view of the legislation, should be regarded as having taken reasonable care to submit an accurate return, even if he understood that there were other possible interpretations of that legislation. The FTT therefore rejected HMRC’s contention that Mr Gedir should have obtained a second opinion and cancelled the inaccuracy penalty (FA 2007 Sch 24).
Why it matters: The FTT recognised that the transfer of Mr Gedir from Bear Stearns to Goldman Sachs had taken place during the ‘turbulent times’ of the 2008 financial crisis during which a lot of activity had gone on ‘behind the scene’. However, in the absence of evidence on the exact circumstances of Mr Gedir’s move, the foreign service deduction was not available.
Foreign service deduction following change of employer
In J Gedir v HMRC [2016] UKFTT 188 (15 March 2016), the FTT found that an employee who had changed employer was not entitled to a foreign service deduction (ITEPA 2003 s 413) relating to his first employment, on termination of his employment with the second employer.
Mr Gedir was employed by Bear Stearns, the American investment bank which was acquired by JP Morgan in August 2008. He received an offer from JP Morgan to continue in his previous role at that bank, which he accepted. For reasons unclear to the FTT, Mr Gedir took up employment with Goldman Sachs instead of JP Morgan on 1 September 2008. He left Goldman Sachs in 2010 and received a termination payment of £627,965, which he reported in his 2010/11 tax return, claiming foreign service relief in relation to the period when he had been employed by Bear Stearns.
The issue was whether Goldman Sachs was a ‘successor’ of Bear Stearns for the purpose of ITEPA 2003 s 404(1)(c); this depended on whether the risk arbitrage business unit, Mr Gedir had been a part of, had been transferred to it. The FTT felt that the concept of ‘economic entity’ used in the TUPE regulations was relevant. It found that there was insufficient evidence that the unit had been transferred as an identifiable economic entity to Goldman Sachs.
On the basis that the foreign service deduction was not available, Mr Gedir had submitted an incorrect return and HMRC had imposed a penalty. The FTT found however that a taxpayer who has consulted an advisor he reasonably believed to be competent and experienced in the relevant field, and who had been advised that his tax return may properly completed on the basis of a particular view of the legislation, should be regarded as having taken reasonable care to submit an accurate return, even if he understood that there were other possible interpretations of that legislation. The FTT therefore rejected HMRC’s contention that Mr Gedir should have obtained a second opinion and cancelled the inaccuracy penalty (FA 2007 Sch 24).
Why it matters: The FTT recognised that the transfer of Mr Gedir from Bear Stearns to Goldman Sachs had taken place during the ‘turbulent times’ of the 2008 financial crisis during which a lot of activity had gone on ‘behind the scene’. However, in the absence of evidence on the exact circumstances of Mr Gedir’s move, the foreign service deduction was not available.
