Judgment summary
This is a decision of the First-tier Tribunal (Tax Chamber) concerning appeals by Cogefin (Bermuda) Limited and Mr Giuseppe Ciardi against discovery assessments and penalties issued by HMRC, and against a personal liability notice issued to Mr Ciardi (paragraph 1). The assessments related to corporation tax for accounting periods 1999 to 2017, with penalties for failure to notify chargeability from 1999 to 2013 (paragraph 1).
The Tribunal reviewed an extensive bundle including 20,148 pages of chronological correspondence spanning 1996 to 2017 and heard evidence from Cogefin's former directors, Mr Ciardi, bank relationship managers, and other advisers (paragraphs 2, 19-22).
The Tribunal concluded that decision-making rested with Mr Ciardi rather than Cogefin's Bermuda-resident directors, that Cogefin was UK resident throughout the periods under appeal, that the discovery assessments were validly raised, that Cogefin's failure to notify chargeability was careless (not deliberate), and that the personal liability notice against Mr Ciardi could not stand (paragraphs 309-411).
Background
Cogefin (Bermuda) Limited was incorporated in Bermuda on 12 February 1996, wholly owned by the Poole Family Trust, of which Mr Giuseppe Ciardi was the economic settlor and beneficiary (paragraph 3-4). Cogefin was an exempted Bermudian company that could not conduct business within Bermuda but could operate from there for international purposes; its directors were always Bermudian-resident lawyers from MLH Quin & Co (later Wakefield Quin Limited), with corporate services provided by MQ Services Limited (paragraph 4).
Cogefin was initially funded with around $7.7m of stocks and grew to around $25m by 1999 and over $250m by 2011 (paragraph 5). It funded commercial property, renewable energy projects and personal acquisitions of residential property, art and jewellery for Mr Ciardi (paragraph 5).
The case originated from a disclosure Mr Ciardi made under the Liechtenstein Disclosure Facility (LDF) in June 2012, formally accepted in September 2013, which described Mr Ciardi as an investment adviser to Cogefin whose recommendations the directors routinely sought and followed (paragraphs 3, 6). Although the LDF report stated Cogefin's central management and control (CMC) resided in Bermuda, HMRC questioned this and opened a Code of Practice 8 investigation in 2014 (paragraph 7-8).
Core dispute
HMRC contended that Mr Ciardi exercised central management and control of Cogefin from the UK from at least 1999, that the directors' role was limited to implementing his instructions, and that he acted as a shadow or de facto director personally liable for penalties under the PLN (paragraph 8). The appellants maintained that Cogefin was managed and controlled in Bermuda, that the directors made genuine investment decisions after considering advice, and that Mr Ciardi's role was limited to that of an adviser (paragraphs 9, 12).
By agreement, the Tribunal addressed only issues of principle, excluding quantum (paragraph 10). The issues for determination were: whether Cogefin was UK or Bermuda resident; whether the assessments for 1999-2013 were validly made under paragraph 41 Schedule 18 Finance Act 1998, including time limits and statutory gateways; whether Cogefin had a reasonable excuse and whether its conduct was careless or deliberate for penalty purposes; and whether Mr Ciardi was an officer or shadow director such that any deliberate failure was attributable to him (paragraph 10).
Court findings
The Tribunal found that, standing back and considering the overall picture, the directors did not make the relevant high-level decisions required for central management and control to be located in Bermuda; decision-making was effectively abdicated by the directors to Mr Ciardi, whose proposals they implemented, viewing their role as essentially that of trustees performing a 'sense check' (paragraphs 299-309). The Tribunal found this pattern continued throughout all periods under appeal, and concluded Cogefin was resident in the UK only, not Bermuda, for all periods (paragraphs 310-311).
On the assessments, the Tribunal held that section 118(2) TMA 1970 did not deem Cogefin to have complied with its notification obligations, as the directors had not taken reasonable care to review Cogefin's residence position (paragraphs 325-336). It found the loss of tax was attributable to the failure to notify, applying the reasoning in Mainpay, so the extended 20-year time limits under paragraph 46 Schedule 18 FA 1998 applied and the assessments were validly made (paragraphs 337-366). The Tribunal accepted HMRC Officer Charles's evidence that a valid discovery was made in late April 2019, following receipt of substantial further information in November 2018, applying Tooth [2021] UKSC 17 (paragraphs 349-366).
On penalties, the Tribunal found Cogefin's behaviour was careless but not deliberate, holding that HMRC had not properly pleaded or put deliberate behaviour to the witnesses, and that, applying Tooth's test for 'deliberate' conduct, there was a lack of thought rather than an intention to mislead HMRC (paragraphs 382-390). The penalties were reduced to 25% of the potential lost revenue for all periods, with HMRC's mitigation percentages upheld as reasonable (paragraphs 391-409).
Because the failure was not deliberate, the Tribunal found there could be no liability on Mr Ciardi under paragraph 22(1) Schedule 41 Finance Act 2008 and allowed his appeal against the personal liability notice (paragraph 410).
Outcome
Cogefin's appeal in respect of residence and the validity of the associated assessments was dismissed; Cogefin was found to be UK resident throughout the periods under appeal and the assessments were validly raised (paragraphs 411-412). Cogefin's appeal against the penalties was allowed in part, with penalties reduced to 25% of the potential lost revenue on the basis that the behaviour was careless rather than deliberate (paragraphs 391-409, 412). Mr Ciardi's appeal against the personal liability notice was allowed (paragraph 413). Issues relating to quantum were reserved by agreement, and Cogefin's appeals were adjourned for the parties to seek to agree quantum, with liberty to apply to the Tribunal if agreement could not be reached (paragraph 414).
Major issues / areas of contention
- Whether Cogefin (Bermuda) Limited was resident in the UK or Bermuda for tax purposes, based on the location of its central management and control.
- Whether the discovery assessments for the periods 1999-2013 were validly made under paragraph 41 Schedule 18 Finance Act 1998, including whether the extended time limits and statutory gateways were satisfied.
- Whether Cogefin had a reasonable excuse under section 118(2) TMA 1970 for its failure to notify chargeability, and whether its conduct was careless or deliberate for penalty purposes.
- Whether Mr Ciardi was an officer or shadow/de facto director of Cogefin such that any deliberate failure was attributable to him, relevant to the personal liability notice.