Bermudian company loses UK tax battle
A Bermudian investment company has lost a long-running tax dispute with UK tax authorities after a tribunal ruled that, despite being incorporated and administered in Bermuda, its central management and control was exercised from Britain for almost two decades.
The First-Tier Tribunal found that Cogefin (Bermuda) Ltd was resident in the UK for corporation tax purposes from 1999 to 2017 because key decisions were effectively made by Giuseppe Ciardi while he was in Britain, rather than by the company's Bermudian-based directors.
However, the tribunal also ruled in favour of Mr Ciardi on one issue, finding that His Majesty’s Revenue and Customs had failed to prove the company’s conduct was deliberate. It reduced the associated penalties and cancelled a personal liability notice issued against him.
The case stemmed from a disclosure made by Mr Ciardi under the Liechtenstein Disclosure Facility in 2012. HMRC subsequently investigated whether Cogefin, incorporated in Bermuda in 1996 and owned by the Poole Family Trust, was genuinely managed from the island or from Britain.
According to the decision, published on July 30, Cogefin was established to hold and manage investments on behalf of the trust. Its directors throughout were lawyers from the Hamilton law firm MLH Quin & Co, later Wakefield Quin Ltd, while affiliated company MQ Services provided corporate administration.
The tribunal said the company grew from assets of about $7.7 million at incorporation to more than $250 million by 2011 through investments ranging from financial markets to property, renewable energy, artwork and jewellery.
HMRC argued that the Bermuda directors effectively rubber-stamped decisions already made by Mr Ciardi from the UK, making the company UK tax resident despite its incorporation in Bermuda.
The appellants maintained that the directors genuinely exercised independent judgment in Bermuda, with Mr Ciardi acting only as an investment adviser whose recommendations were considered before decisions were taken.
The directors were listed in the judgment as Roderick Forrest, Nicholas Hoskins, Garth Lorimer Turner, Ian Pilgrim and Maxwell Quin.
After reviewing more than 20,000 pages of correspondence and board records spanning two decades, together with extensive witness evidence, the tribunal sided largely with HMRC.
It concluded that the documentary record painted a different picture from witnesses’ recollections. The tribunal said memories had inevitably faded over the years and placed greater weight on contemporaneous documents than oral testimony.
The judgment said repeated examples showed administrators seeking Mr Ciardi's approval for matters that should have been decided by the directors, including payments, investment commitments and banking arrangements.
In one example, the tribunal found that a £2 million investment in Lavendon Group shares was negotiated directly between Mr Ciardi and Morgan Stanley before the Bermuda directors were asked to provide the paperwork required to authorise a transaction that had already been agreed. Similar patterns emerged across property acquisitions, investment funds and financing arrangements, the tribunal found.
The tribunal also concluded that while the Bermuda directors were conscientious and honest witnesses, the documentary evidence showed they generally reacted to requests rather than making the company’s highest-level decisions themselves.
It concluded that Mr Ciardi's correspondence “was not merely advice but was instead instruction, control and decision-making” and that the directors often implemented decisions already taken elsewhere.
While Cogefin lost the central issue in the case, the tribunal found that the company’s actions with regard to UK tax were not “deliberate”, because the directors genuinely believed the company was not UK resident.
While the tribunal concluded they had failed to take reasonable care, it ruled that the behaviour was “careless” rather than deliberate.
As a result, it reduced the penalties to 25 per cent of the potential lost tax revenue and also upheld Mr Ciardi’s appeal against HMRC’s personal liability notice against him.
The amount of tax ultimately payable by Cogefin to HMRC will be resolved separately.
• See the full tribunal decision in Related Media
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