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GAZETTE
APRIL 1985
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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