Insurance and the general anti-avoidance rule

The tax law of St Vincent and the Grenadines, in common with other jurisdictions in the Eastern Caribbean, has a general anti-avoidance rule targeted at transactions which have been

‘… entered into or carried out by means or in a manner which would not normally be employed in the entering into or carrying out of a transaction of the nature of the transaction in question.’

If this criterion is met, the Comptroller of Inland Revenue

‘… shall determine the liability to tax as if the transaction had not been entered into, or in such other manner as he deems appropriate to counteract such avoidance, reduction or postponement of liability as would otherwise be effected by the transaction.’

 Unicomer (St Vincent) Ltd, a major retailer in St Vincent and the Grenadines, sold household items—TVs, fridges, furniture etc—on hire purchase terms. It offered customers the option of paying extra each month to buy insurance against the risk that unemployment, illness or death might make it impossible to keep up the payments for the whole contract term. Many took up this option and paid the extra price. The insurance was written under an agreement between Unicomer and an insurer in Barbados. The insurer in turn reinsured the entire risk with a reinsurer in Bermuda. In practice, the evidence showed, the loss ratio (i.e. the percentage of the total collected in premiums that needed to be paid out to honour claims) was a mere 12.2%.

When calculating its profit in St Vincent and the Grenadines for tax purposes, Unicomer sought to set off, against turnover comprising the total of customers’ cash payments to it, the sums it had passed to the insurer. The complication was that Unicomer’s own audited accounts stated that the money had not been paid to the insurer but directly to the reinsurer in Bermuda, which was moreover a company related to Unicomer.

The Inland Revenue of St Vincent and the Grenadines declined to allow the deduction, basing its decision on a belief that the supposed involvement of the insurer was altogether false, the whole apparent structure being a sham in which the insurer was a mere ‘conduit’ for what were in substance payments by Unicomer to its related company, the aim being to give the impression that Unicomer’s profits in St Vincent and the Grenadines were lower than they really were by shifting some of those profits to a related company in Bermuda. This decision was upheld by the Appeal Commissioners (the equivalent of the First-tier Tribunal Tax Chamber in Britain).

On Unicomer’s further appeal, to the High Court, the judge rejected the ‘sham’ reasoning, finding that the insurance and reinsurance contracts were real contracts, and that the insurer was an independent company and no mere ‘conduit’. But she nevertheless held, albeit without explicitly addressing the relevant statutory text, that Unicomer was caught by the anti-avoidance rule. As for the audited accounts showing that the money had been paid directly to the reinsurer, Unicomer’s case was that this was an accidental error in the accounts. The judge rejected this explanation, implicitly finding that the classification of the payments as having gone directly from Unicomer to its related party, the reinsurer, had been deliberate.

The Court of Appeal upheld this decision, and the case went to the Privy Council.

Before the Privy Council, the Revenue accepted that its original reasoning disallowing the deductions, based as it had been on the belief that the arrangements were a sham, could not sensibly be said to survive the judge’s finding that they were not. Nor could the Revenue point to a clear analysis in the lower courts as to whether the anti-avoidance rule was engaged (or, if it was, as to how it ought to operate in this instance).

Unicomer argued that the court should therefore simply reverse the decision of the Revenue and declare that the deductions were permissible. Lady Simler, giving the judgment of the Judicial Committee, rejected this argument, however, instead agreeing with the Revenue that the right course was to remit the matter to the Appeal Commissioners for them to consider whether the assessment could be upheld (and, if so, how) on the alternative basis that the deductions were caught by the general anti-avoidance rule. Two matters were sufficient to persuade the court that it could not rule out the possibility that the anti-avoidance rule was engaged. First,

‘[a] transaction under which a company organises the purchase of insurance from an insurer by arranging for its customers to purchase insurance directly from the insurer as in the present case, pays the premium not to the insurer but directly to a reinsurer, or at any rate classifies itself as doing so in its financial reporting, thereby indicating that this is the true substance of the matter, is a transaction that is being carried out in a manner that would not normally be employed in the carrying out of a transaction of that nature. The normal manner of carrying out a transaction involving the purchase of insurance alongside a hire purchase agreement is simply to pay the premiums collected from the customers over to the insurer directly.’ (Para 26.)

Secondly, it was

‘… at least open to question whether a party in the position of [Unicomer] would normally (absent the connection with [the reinsurer]) have been content to sell to its customers, and to keep on selling to them without ever seeking to renegotiate, such a disproportionately expensive insurance product apparently paying for cover far in excess of anything likely to be needed.’  (Para 27.)

Unicomer (St Vincent) Ltd v Appeal Commissioners [2026] UKPC 24

Thomas Roe KC (leading Duane A Daniel) appeared for the Comptroller of Inland Revenue.