Kieron Beal QC: The Taxing Issues arising in Miller

kbqc-colour-web-1There have been a number of critical blogs on this website questioning the legal reasoning deployed by the Divisional Court in R (Miller and others) v. Secretary of State for Exiting the EU [2016] EWHC 2768, DC. References below to paragraphs in that judgment are in square brackets. Ultimately, the core issue concerns the domestic law principles governing the relationship between the powers available to the Crown under the Royal Prerogative and the constitutional supremacy of the Queen in Parliament.

It was common ground before the Divisional Court that the vestigial powers of the Crown, encapsulated in the Royal Prerogative, encompass the power of the Crown to conclude and withdraw from international treaties: [30]. But it is equally clear that our dualist tradition does not sanction those international treaties conferring rights, or imposing obligations, on UK citizens without an express domestic law measure doing so: [32]-[33]. The Divisional Court’s conclusion at [33] was that “the Crown cannot through the use of prerogative powers increase or diminish or dispense with the rights of individuals or companies conferred by common law or statute or change domestic law in any way without the intervention of Parliament.” It cited ample authority for that proposition: J.H. Rayner (Mincing Lane) Ltd v. Department of Trade and Industry [1990] 2 AC 418, HL. Indeed, one can refer to the first edition of H.W.R. Wade, Administrative Law, Oxford, 1961 at p. 13:

“The Crown’s powers are either prerogative or statutory. There is little left of the prerogative in our domestic administrative law. In the seventeenth century the Crown lost most of its powers of oppressing the subject; the residual prerogative is now confined to such matters as summoning and dissolving Parliament, declaring war and peace, regulating the armed forces in some respects, governing certain colonial territories, making treaties (though as such they cannot affect the rights of subjects), and conferring honours. The one drastic internal power of an administrative kind is the power to intern enemy aliens in time of war.”

In other words, it is the common law which allows the Crown to exercise the residual prerogative powers. The common law recognises, however, that the Royal Prerogative cannot be exercised in a way that abrogates rights conferred by Parliament without the sanction expressly, or by necessary implication, of Parliament itself.

The Government contended that it could withdraw from Treaties even if this meant abrogating rights held by a UK citizen under domestic law. In support of this argument, the Government sought to draw an analogy with the conferral of rights to tax relief pursuant to Double Taxation Agreements (‘DTAs’) or Double Taxation Conventions (‘DTCs’) (compendiously referred to here as DTAs for convenience). DTAs typically allow two sovereign States to agree that income or capital gains will not be subject to double taxation (juridical and/or economic) in two separate jurisdictions at the same time. Professor Finnis in two blogs on this website has suggested that the ability of the Crown to amend or revoke DTAs provides a useful exemplar of the Crown removing rights in the arena of public international law, even though to do so will inevitably cut across rights held by taxpayers under domestic law. This echoes the submission advanced by the Government in the Miller proceedings, which did not find favour with the Divisional Court.

It is respectfully suggested that the analogy with DTAs is inapposite in the context of the European Communities Act 1972 (‘ECA 1972’). This is for two principal reasons. First, the revocation of taxpayers’ rights is not automatically brought about by the amendment or revocation of a DTA by the Crown. Whereas directly applicable rights under the EU Treaties themselves (including the EU Charter of Fundamental Rights and Freedoms), EU Regulations and directly effective rights conferred by a Directive, all of which are given effect to by the ECA 1972, will be inevitably abrogated by a decision to notify the UK’s withdrawal under Article 50 TEU, the same is not true in relation to a decision to amend or revoke a DTA. Secondly, the rights to tax relief under DTAs are made part of domestic law by Orders in Council which are themselves made pursuant to express statutory authority. Similarly, statute expressly envisages Her Majesty by Order in Council amending the arrangements made under DTAs. In contrast, the ECA 1972 itself confers rights on UK citizens under EU law, but does not contain any statutory authorisation envisaging its intrinsic amendment or repeal, whether by delegated legislation or by exercise of the Royal Prerogative.

DTAs are expressly given force in the domestic plane by an Act of Parliament. For many years, section 788(1) ICTA 1988 stated:

“(1) If Her Majesty by Order in Council declares that arrangements specified in the Order have been made with the government of any territory outside the United Kingdom with a view to affording relief from double taxation in relation to—

(a) income tax,

(b) corporation tax in respect of income or chargeable gains, and

(c) any taxes of a similar character to those taxes imposed by the laws of that territory,

and that it is expedient that those arrangements should have effect, then those arrangements shall have effect in accordance with subsection (3) below.”

Equivalent provision is now found in sections 2 and 3 of the Taxation (International and Other Provisions) Act 2010 (‘TIOPA 2010’). DTAs may be given effect in domestic law if Her Majesty by Order in Council deems it expedient, but that is precisely because Parliament has said that such a domestic law measure may be made. Moreover, the wording used is significant. It is the arrangements specified in the Order in Council which are given effect, not the DTA itself. It is for this reason that the terms of the DTAs are specified verbatim in a schedule to the Order in Council itself. Much like the relevant parts of the Vienna Convention on Diplomatic Relations are set out verbatim in a schedule to the Diplomatic Privileges Act 1964. Unlike the ECA 1972, the substantive provisions of the DTA are incorporated into the Order in Council. There is no mere cross-reference to the underlying treaty itself. This is in contrast to the provisions of the ECA 1972. Section 2 ECA 1972 creates directly enforceable EU law rights in the UK by broad reference to the EU Treaties. The EU Treaties are defined in section 1(2) ECA 1972. Each time a new Treaty is made, an amendment is necessary to section 1(2) to add it to the list.

The Government’s argument (and the adrenalin shot it has received from Professor Finnis) proceeds on the assumption that the DTA itself confers rights under the domestic legal order directly because of the wording used in section 2 TIOPA 2010. But the fallacy in that approach can be seen in the event that the DTA is not formally ratified until some time after the relevant Order in Council has been made; or where the Order in Council remains in place after one of the parties has withdrawn from the DTA. If the Order in Council has incorporated the terms of the relief conferred with immediate effect, then subsequent delay in the entry into effect of the DTA itself does not affect the substantive entitlement conferred by domestic law. Similarly, an Order in Council will continue to grant relief from taxation under the arrangements it incorporates even if those arrangements, on the international plane, have been amended or revoked.

One can see why the Government takes steps to ensure temporal synchronicity between the international agreements it makes and their domestic implementation. Take, for example, the Double Taxation Relief and International Tax Enforcement (Jersey) Order 2015. This Order in Council was made to give effect to an exchange of letters between Her Majesty’s Government and the Government of Jersey. The terms of the DTA itself are found in Appendix 1 to the Exchange of Letters. Paragraph 4 of that Appendix states in that: “Each of the territories shall notify to the other the completion of the procedures required by its law for the bringing into force of this Arrangement. This Arrangement shall enter into force on the date of the later of these notifications and shall thereupon have effect.” The risk of a legal “gap” between the entry into effect of an international treaty and its incorporation into the municipal law of the UK is thereby avoided.

What about the process for amendment of that DTA? The Jersey example shows us how that has been done. The Double Taxation Relief (Jersey) Order 2016 expressly informs UK taxpayers of the amendments that have been made by the UK Government with the Government of Jersey. Article 2 of that Order states:

“(1) It is declared that there has been made with the Government of Jersey—

(a) the Exchange of Letters set out in Part 1 of the Schedule to this Order, and

(b) the Arrangement referred to in the Exchange of Letters, as set out in Part 2 of that Schedule, which varies the arrangements set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Jersey) Order 1952, as amended by the arrangements set out in—

(i) the Schedule to the Double Taxation Relief (Taxes on Income) (Jersey) Order 1994,

(ii) the Schedule to the Double Taxation Relief and International Tax Enforcement (Jersey) Order 2009, and

(iii) the Schedule to the Double Taxation Relief and International Tax Enforcement (Jersey) Order 2015,

with a view to affording relief from double taxation in relation to income tax or corporation tax and taxes of a similar character imposed by the laws of either party.”

The Exchange of Letters concluded a binding international agreement on 8 March 2016, when the Jersey Government signed its approval of the proposal made by the UK Government on 29 February 2016. By that Exchange of Letters, the Crown agreed to amend the terms of the UK/Jersey DTA. But the fact of that amendment, noted on the face of the Order, took no effect in the domestic law of the United Kingdom until the promulgation of the Order in Council. The Order was not made until 13 July 2016. As for the entry into effect of the provisions, that has been covered in the Schedule to the Order in Council. By Part 2 of Schedule 1, para 4, each of the territories was required to “notify to the other the completion of the procedures required by its law for the bringing into force of this Arrangement. This Arrangement shall enter into force on the date of the later of these notifications and shall thereupon have effect from 16 March 2016.” So once the Jersey Government notifies the UK Government of the completion of the procedures, the Order in Council will enter into effect from 16 March 2016. The Government has confirmed in the printed Order in Council that it will publish the date of notification in the London, Edinburgh and Belfast Gazettes.

Consider what would happen if that sensible step were not taken. Imagine, for example, that the Government has concluded a DTA with Jersey. It gives effect to that through an Order in Council in the usual way. But the UK Government becomes concerned that the DTA is being used as a vehicle for tax avoidance. By executive act alone Her Majesty’s Government decides to amend the terms of the DTA in agreement with the Government of Jersey. (As an aside, the Government in fact has generally resorted to primary legislation in such cases: see Padmore v IRC [1987] STC 36; R (Huitson) v. HMRC [2011] EWCA Civ 893; [2012] Q.B. 489, CA and R (Shiner) v. HMRC [2011] EWCA Civ 892; [2011] S.T.C. 1878, CA). In this example, however, the Crown exercises its prerogative powers to amend the DTA as a matter of public international law. But it fails to make an Order in Council amending the extant Jersey DTA Order in Council and putting in place a substitute. In those circumstances, the Order in Council continues to confer rights on taxpayers, read in accordance with the terms of TIOPA 2010. The withdrawal from the DTA does not automatically bring to an end the rights conferred by the Order, since the Order itself has independent legal validity. In the absence of such a revoking or amending Order, the UK taxpayer remains entitled to rely upon the terms of the Order to claim double taxation relief. They remain arrangements specified in an extant Order in Council, which by sections 2 and 3 of TIOPA 2010 permit a claim for double taxation relief to be made. Indeed, any other outcome would infringe legal certainty, since a taxpayer would have no proper way of knowing pursuant to a binding legal measure that the underlying DTA (i.e. the treaty) had been amended. The Crown does not use the Royal Prerogative power to make or withdraw from international treaties to remove the right to double-taxation relief. It uses the set of statutory powers that conferred the right to make the original Order in Council in the first place.

There is nothing alien about having an entitlement to double taxation relief which is not necessarily underpinned by an executory international agreement. By section 9 of TIOPA 2010, Parliament has conferred on UK taxpayers a unilateral entitlement to credit for tax paid under the law of a territory that corresponds to a tax paid on income in the UK. That entitlement does not arise if double taxation relief is allowed under the provisions giving effect to a DTA: see section 10 TIOPA 2010. But this shows that Parliament has also allowed taxpayers double-taxation relief even if there is no underlying international treaty which it is giving effect to.

The scenario in which an Order in Council pre-dates the entry into force of the DTA is one which Professor Finnis has himself invoked by referring to the DTA agreed with Russia. The UK/Russia Double Taxation Convention was signed on 15 February 1994. It entered into force on 18 April 1997. It was only effective in the UK from 1 April 1998 for capital gains tax purposes and from 6 April 1998 for income tax purposes. The relevant Order in Council, the Double Taxation Relief (Taxes on Income) (Russian Federation) Order 1994 (SI 1994 No 3213), gave effect to the DTA. The Order in Council was made on 14 December 1994. The Order in Council had effect in our domestic legal order from that date. Professor Finnis points to the fact that no rights were created under domestic law until, four years after its signature, the UK-Russia DTA finally entered into effect. But that domestic entry into effect is attributable to the wording of the Order in Council itself, in particular Schedule 1. The Order in Council expressly scheduled the relevant provisions of the DTA and confirmed by Article 2 of the Order that it was expedient for those provisions to have effect. Professor Finnis has rightly cited Article 28 of the UK/Russia DTA. This Article, incorporated in Schedule 1 to the Order in Council, tied the entry into effect of the DTA in the domestic legal order with the completion of the necessary “internal procedures” in both States. The date for entry into effect of the Order in Council – and the ability of taxpayers to rely upon it – was therefore addressed explicitly in Schedule 1 to the Order itself. Double taxation relief is therefore only available under TIOPA 2010, including, for example under section 134, where the domestic law measures permit it. The DTAs themselves are not made self-executing in the same way by the provisions of TIOPA 2010.

Indeed, the Order in Council may or may not contain rights to tax relief which are more or less extensive than the rights agreed between the sovereign States under the DTA. Section 3 of TIOPA 2010 confers a power that goes beyond the ambit of any rights conferred by the DTA itself, since by section 3(1)(b), the Order in Council may give relief from tax for “periods before the making of the arrangements.” It is therefore lawful for an Order in Council to confer rights to double taxation relief on taxpayers for a period before the underlying entitlement to such relief was agreed by the Crown in exercise of the Royal Prerogative. Section 5(1) TIOPA 2010 also expressly envisages that an Order in Council may revoke an earlier Order and, if it does so, it may contain any necessary transitional provisions. When the terms of the DTA are amended, that amendment takes no effect in domestic law by itself. In keeping with constitutional principle, the agreement, concluded on the international plane, cannot confer rights on taxpayers by itself. Nor can it remove them. But conversely, nor can the amendment remove rights that have already been conferred by delegated legislation made under Parliamentary authority. Rather, the Crown must promulgate an amended Order in Council which repeals the former measure and puts in its stead the replacement Order in Council. If the Crown were to withdraw from a DTA, the Order in Council would need to be revoked to give effect to it, unless the Order in Council already contained express provision governing the termination of its own arrangements.

It follows that the rights conferred by domestic law, by way of an Order in Council, cannot therefore be removed directly by the Government’s agreement to amend or withdraw from a DTA. Only an Order in Council could remove or amend the existing rights. But the Government seeks to side-step this point in the way it puts its argument in Miller. It recognises that the rights to double taxation relief agreed at an international level by the Crown are given effect to by domestic measures of implementation. But it contends that the underlying power of the Crown to amend a DTA is unaffected by the fact that rights have been conferred by Order in Council. Those rights will invariably be affected by the treaty amendment of the DTA itself, even if it takes some time for the Order in Council to be revoked or amended. This, the Government says, is akin to the process it is now engaged in. It has the prerogative power to withdraw from the EU Treaties, but the domestic rights conferred by the will not be lost until the ECA 1972 is itself repealed by Parliament. This also appears to be the position adopted by Professor Finnis. He says that it is one of the necessary pre-conditions of a right to double-taxation relief that there is a valid and extant double taxation treaty underpinning the domestic law right.

The difficulty with this argument, for the reasons explained above, is that there is no necessary or invariable removal of a right to double-taxation relief in the event that the underlying DTA treaty is amended or revoked. The Order in Council remains valid and binding until amended or revoked. It is the arrangements specified in the Order which give rise to an entitlement to double-taxation relief, not the DTA itself. The Order in Council itself refers to the fact that relief is available under the specific provisions of a scheduled agreement. The ongoing validity of that underlying agreement is irrelevant to the rights that are in fact conferred under the Order in Council. It is perfectly possible in principle to have an Order in Council giving relief under a DTA even if that DTA has, in the meantime, been revoked at an international level. It is, of course, precisely to avoid this undesirable solution that the Government routinely agrees DTAs which expressly only take effect once the relevant domestic law provisions have been put in place. Domestic legislation may doubtless – and for very good practical reasons – ensure that the symmetry between the underlying international law ‘rights’ and their domestic implementation is maintained in birth and at death. But the way it does that at the beginning is, as Professor Finnis has recognised, through “the internal procedures.” That is, through appropriate wording in the Order in Council itself.

In contrast, the decision to trigger Article 50 TFEU – subject to the question of irrevocability which is not addressed here – does invariably abrogate EU law rights after the expiry of two years, as the Divisional Court rightly found in its judgment. A host of directly applicable or directly effective rights, especially those of a procedural nature or with interwoven intra-EU effect are invariably compromised through a decision to notify withdrawal from the EU. In the course of argument before the Divisional Court, the Government accepted that some rights would be irretrievably lost and others would “hollowed out” by the act of triggering Article 50 TEU.

This leads on to the second reason why the DTA analogy is inapt, which has already been touched on above. That is because the rights derived from DTAs are given effect through an Order in Council made with express statutory authorisation. In contrast, the EU rights derived from the ECA 1972 are conferred by Parliament itself. They are “primary law” rights, which should not be capable of being abrogated by delegated legislation or by the prerogative without the express authorisation of Parliament (or authorisation by necessary implication derived from an enactment). They are conferred by the ECA 1972 itself. The rights are conferred by Parliament directly. Could those rights be revoked by an act of delegated legislation? Clearly not. Even if a subsequent Act of Parliament conferred a statutory power on the executive to make delegated legislation, that could not be used to abrogate rights conferred by an Act of Parliament without express words. See R (Totel) v. First Tier Tribunal [2012] EWCA Civ 1401, CA per Moses LJ at [17]-[18] and [29]-[30] and the underlying case law cited therein.

Kieron Beal QC is a barrister at Blackstone Chambers, specialising in European law, competition law, direct and indirect tax and public law.

(Suggested citation: K. Beal ,’The Taxing Issues Arising in Miller’ U.K. Const. L. Blog (14 Nov 2016)  (available at