AS TO THE ADMISSIBILITY OF

                      Application No. 27721/95

                      by NAP Holdings UK Ltd

                      against the United Kingdom

     The European Commission of Human Rights (First Chamber) sitting

in private on 12 April 1996, the following members being present:

           Mr.   C.L. ROZAKIS, President

           Mrs.  J. LIDDY

           MM.   E. BUSUTTIL

                 A.S. GÖZÜBÜYÜK

                 A. WEITZEL

                 M.P. PELLONPÄÄ

                 B. MARXER

                 B. CONFORTI

                 N. BRATZA

                 I. BÉKÉS

                 E. KONSTANTINOV

                 G. RESS

                 A. PERENIC

                 C. BÎRSAN

                 K. HERNDL

           Mrs.  M.F. BUQUICCHIO, Secretary to the Chamber

     Having regard to Article 25 of the Convention for the Protection

of Human Rights and Fundamental Freedoms;

     Having regard to the application introduced on 15 May 1995 by NAP

Holdings UK Ltd against the United Kingdom and registered on 26 June

1995 under file No. 27721/95;

     Having regard to the report provided for in Rule 47 of the Rules

of Procedure of the Commission;

     Having deliberated;

     Decides as follows:

THE FACTS

     The applicant ("NAPUK") is a limited company with its head office

in London.  It is represented before the Commission by Mr. E. Sparrow,

of Messrs. Ashurst Morris Crisp, solicitors, with Mr. D. Pannick, QC,

and Messrs. P. Duffy and K. Prosser, counsel.  The facts of the case,

as submitted by NAPUK's representatives, may be summarised as follows.

     Prior to 23 April 1983 NAPUK and Astbro Inc. ("Astbro") were

wholly-owned subsidiaries of Exco Overseas Ltd. ("Overseas").  They

were therefore members of the same group of companies for the purposes

of corporation tax on chargeable gains.  On 23 April 1983, NAPUK

acquired the Astbro shares from Overseas in exchange for an issue to

Overseas of a further 20 million ordinary shares in NAPUK.  Clearances

for the proposed transactions had been sought and obtained from the

Inland Revenue, which thereby accepted that the acquisition was for

bona fide commercial reasons.

     Overseas had acquired the Astbro shares in 1981 and 1982 for some

$7.5m.  NAPUK acquired them in April 1983, when they were worth some

$400m.  In August 1985, NAPUK sold the Astbro shares outside the group

for $431m.

     On 25 February 1986 Hoffmann J. gave judgment on an appeal from

a decision of the General Commissioners of Income Tax in the case of

Westcott (Inspector of Taxes) v. Woolcombers Ltd. ([1986] STC 182).

The judgment confirmed the General Commissioners' findings in 1981

that, where a company (A) transferred the entire issued share capital

in a subsidiary company (B) to another subsidiary company (C) in

exchange for a new allotment of shares in company C, the transfer of

shares in company B amounted to a "disposal" for the purposes of

Schedule 13, para. 2(1) to the Finance Act 1965 (replaced by Section

273 (1) of the Income and Corporation Taxes Act 1970, as amended).  The

effect of the decision was that, for the purposes of computing company

C's chargeable gains or allowable losses arising on the sale of the

shares in company B outside the group, the acquisition cost of those

shares was to be treated as the consideration originally paid by

company A.  The judgment surprised the financial community because it

had thitherto been assumed by both taxpayers and the Revenue that such

a transfer did not give rise to a "disposal" and that the acquisition

cost of the shares on a sale outside the group was to be treated as the

value of the shares at the time of the exchange.

     On 6 January 1989 NAPUK was assessed to tax on the capital gain

on the sale of the Astbro shares, represented by the difference between

the original purchase price paid by Overseas ($7.5m) and the sale price

of the shares ($431m).  NAPUK was accordingly assessed to tax in the

sum of £230m.

     NAPUK appealed, contending that the tax should be assessed on the

difference in value between the date when it, NAPUK, acquired the

shares (value $400 m) and when it sold them (for $431 m).

     On 31 July 1987 the Court of Appeal dismissed the Crown's appeal

against Hoffmann J's judgment in the Woolcombers case ([1987] STC 600).

     On 15 March 1988 the Inland Revenue announced proposed

legislation to reverse the Woolcombers decision.  In a press release,

it was stated, inter alia, that the proposed amendment would correct

the position by providing for the general rule (in Section 273 of the

1970 Act) to be ignored when the special rules (in Sections 78 and 85

of the Capital Gains Tax Act 1979) applied.

     Section 115 of the Finance Act 1988 enacted the change announced

in the press release with effect from 15 March 1988.

     A Special Commissioner of Income Tax dismissed NAPUK's appeal in

23 March 1990.  He held that the rationale of the decision in

Woolcombers had not been affected by later statutory provisions, so

that the base value for tax was the value of the shares when Overseas

acquired the Astbro shares.  The High Court dismissed NAPUK's appeal

by way of case stated on 6 December 1991 ([1992] STC 59).

     The Court of Appeal allowed NAPUK's appeal on 9 July 1993 ([1993]

STC 592).

     On 17 November 1994 the House of Lords by a majority of 4 to 1

allowed the Revenue's appeal, holding that the Woolcombers case had

been correctly decided and that the construction placed in that case

on the statutory predecessors of Section 273 of the 1979 Act and

Sections 78 and 85 of the 1979 Act had not been displaced by any

subsequent statutory provisions.

COMPLAINTS

     NAPUK alleges a violation of Article 1 of Protocol No. 1 to the

Convention, taken alone and in conjunction with Article 14 of the

Convention.

     Under Article 1 of Protocol No. 1, NAPUK considers that there was

no "reasonable relationship of proportionality" between the means

employed in the present case, and the aim pursued.  In particular, it

points out that:

-    the transaction had been cleared with the Inland Revenue before

     it was implemented, and was accepted as a bona fide commercial

     transaction;

-    according to all the information available to the NAPUK and its

     advisers at the time, the disputed liability would not arise;

-    the Revenue knew of the contrary private ruling of the General

     Commissioners in the Woolcombers case, but did nothing to

     publicise that ruling or the Revenue's High Court appeal;

-    no warning was given to NAPUK when clearing the transaction;

-    under the law as interpreted in by the Inland Revenue in the past

     and as now amended for the future, the disputed liability would

     not be imposed on NAPUK, and that

-    an extra-statutory concession and/or amendment of the law were

     refused by the Revenue although granted in other analogous cases.

     In connection with the information available to NAPUK at the time

of the transaction, an affidavit has been submitted from the NAPUK's

accountant that the Woolcombers decision came as a complete surprise

to him and to the vast majority of practitioners, and that the whole

case was unprecedented in his experience: in particular, if the Revenue

had not kept totally silent until 1986 about the issues in the pending

Woolcombers case, the transaction would never have been completed in

the way it was.

     Copy correspondence with the then Financial Secretary to the

Treasury, Mr. J. Major, has also been submitted.  In it, NAPUK's

accountant by letter of 25 April 1988 (that is, after the Revenue had

announced the proposed change in legislation and before the change was

enacted) the accountant wrote that "since the purpose of [the clause]

is to restore the position to that which was generally thought to be

correct prior to [Woolcombers], there is a strong case for saying that

the effective date of this clause should be retrospective subject only

to  the  proviso  that those  persons  who  are  prejudiced  by such

retrospection should be given the right of election to adopt the

[Westcombers] treatment".  In his reply, the Financial Secretary

replied:

     "The general principle is that, other than in very exceptional

     circumstances, tax legislation should not be retrospective,

     particularly where - as here - such retrospection would prejudice

     some people who acted on the basis of the law as it then was.

     As a result of Woolcombers some people may have organised their

     affairs to obtain relief for losses which, but for Woolcombers,

     would not have been available.  Such people would argue, with

     some justification, that retrospection would be unfair.

     You suggest that in these cases taxpayers should be able to elect

     for the legislation not to be retrospective.  However, to breach

     the basic rule against retrospection and then - additionally -

     only to apply the law retrospectively where it was beneficial to

     do so would, I think you will agree, not only be an extraordinary

     departure from fundamental principles but would also set a very

     awkward precedent."

     NAPUK has submitted a list of occasions over recent years on

which retroactive legislation has been passed.  One instance is the

enactment of Section 53 of the Finance Act 1991, which was enacted to

reverse the decision of the court in R. v. IRC ex parte Woolwich

Equitable Building Society (see, in the Convention context,

Nos. 21319/93, 21449/93 and 21675/93, Dec. 13.1.95).  A further note

has been submitted of cases in which extra-statutory concessions have

been granted to remove unintended consequences of tax decisions.

THE LAW

     NAPUK alleges a violation of Article 1 of Protocol No. 1

(P1-1) to the Convention, taken alone and in conjunction with Article

14 (P1-1+14) of the Convention.

     Article 1 of Protocol No. 1 (P1-1) provides as follows:

     "Every natural or legal person is entitled to the peaceful

     enjoyment of his possessions.  No one shall be deprived of his

     possessions except in the public interest and subject to the

     conditions provided for by law and by the general principles of

     international law.

     The preceding provisions shall not, however, in any way impair

     the right of a State to enforce such laws as it deems necessary

     to control the use of property in accordance with the general

     interest or to secure the payment of taxes or other contributions

     or penalties."

     Article 14 (Art. 14) of the Convention provides as follows:

     "The enjoyment of the rights and freedoms set forth in this

     Convention shall be secured without discrimination on any ground

     such as sex, race, colour, language, religion, political or other

     opinion, national or social origin, association with a national

     minority, property, birth or other status."

     The Commission recalls that Article 1 (Art. 1) guarantees in

substance the right of property.  It comprises three distinct rules.

The first, which is expressed in the first sentence of the first

paragraph and is of a general nature, lays down the principle of

peaceful enjoyment of property.  The second, in the second sentence of

the same paragraph, covers deprivation of possessions and makes it

subject to certain conditions.  The third, contained in the second

paragraph recognises that the Contracting States are entitled to

control the use of property in accordance with the general interest or

to secure the payment of taxes or other contributions or penalties.

     However, the three rules are not "distinct" in the sense of being

unconnected: the second and third rules are concerned with particular

instances of interference with the right to peaceful enjoyment of

property and should therefore be construed in the light of the general

principle enunciated in the first rule (see, with further references,

Gasus Dosier- und Fördertechnik GmbH judgment of 23 February 1995,

Series A no. 306, p. 46, para. 55).

     In the context of tax legislation, the European Court of Human

Rights has recently re-iterated that the legislature must be allowed

a wide margin of appreciation.  The legislature's assessment will be

respected unless it is devoid of reasonable foundation (above-mentioned

Gasus judgment, p. 49, para. 60).

     In the present case, NAPUK entered into a transaction on the

basis that it would have a particular tax effect.  The Commission

accepts that that tax effect was based on the understanding of both the

Inland Revenue and the bulk of professional advice at the time.  It

transpired, however, that the understanding was wrong: the Court of

Appeal in the Woolcombers case found (as the Inland Revenue expressed

it in the press release of 15 March 1988) that both the special rules

and the general rules on transfers of assets between members of the

same group applied.  The result was that the base value for the

taxation of NAPUK's acquisition was the value of the shares in 1981 and

1982, and not the value when NAPUK acquired them, in April 1983.

     The Commission will first consider NAPUK's claim that the Inland

Revenue could, and should, have informed it about the decision of the

General Commissioners in the case of Woolcombers: that decision had

been taken in July 1980, and if NAPUK had been informed of the

possibility that the general understanding of the law was not to be

accepted by the courts, it would have arranged its affairs in a

different - equally legitimate - way so as not to incur the greater

liability to tax.

     As to the proceedings before the General Commissioners, NAPUK has

submitted that although proceedings before the General Commissioners

are private, and although the Commissioners' decisions are not

published, nothing would have prevented the Commissioners from

informing NAPUK of the General Commissioners' decision in the

Woolcombers case in a way which would not have revealed the identity

or the circumstances of the taxpayer in question.  NAPUK has submitted

a press release in another case where decisions of the General

Commissioners were referred to.

     On the basis that the decision of the General Commissioners in

the Woolcombers case could not have been anticipated, the Commission

sees no reason why the Revenue should have informed NAPUK in particular

or taxpayers generally about what it must have regarded as a maverick

decision.  If the General Commissioners' decision was as unexpected as

the applicant company suggests, the Revenue must have been reasonably

confident of a successful appeal.  Accordingly, the Commission does not

accept that the Revenue was acting in bad faith in not revealing the

Commissioners' 1981 decision in the Woolcombers case.

     The remainder of NAPUK's claim under Article 1 of Protocol No. 1

(P1-1) and Article 14 (Art. 14) of the Convention is, in substance,

that the amendment to Section 273 of the Taxes Act 1970 which was

brought about by the Finance Act 1988 should have had retroactive

effect, so that NAPUK, too, could have benefitted from it.  In this

connection the Commission again recalls that the legislature's

assessment in tax matters will be respected unless it is devoid of

reasonable foundation.

     In reply to NAPUK's accountant's letter, the Financial Secretary

to the Treasury - a parliamentary assistant to the Chancellor of the

Exchequer - gave reasons for the decision not to give retroactive

effect to the amending legislation.  Those reasons were, in summary,

that it would not be fair to individuals who had arranged their affairs

subsequent to the Woolcombers decision if the effects of that decision

were nullified retroactively.  The Commission can see some force in

this argument, which cannot be considered to be "devoid of reasonable

foundation".  The Commission can also accept that it would be difficult

to set up a system of retroactivity which depended on the will of the

taxpayer.

     Finally, the Commission notes although the charge to tax which

eventually arose was not expressly foreseen by NAPUK or its advisers

(or probably by the Revenue), the possibility of the unexpected

happening cannot have been completely excluded: the clearance letter

to NAPUK's accountants confirmed that the transaction was a bona fide

commercial transaction, but did not state that the transaction would

have the desired effect for the purposes of corporation tax on

chargeable gains.

     Given the limited nature of the Commission's consideration of the

complaints under Article 1 of Protocol No. 1 (P1-1) to the Convention,

and the reasons put forward for the decision not to give retroactive

effect to the legislation which "corrected" the Woolcombers decision,

the Commission finds the present case does not disclose a violation of

NAPUK's right of property, and that NAPUK was able to enjoy that right

without discrimination within the meaning of Article 14 (Art. 14) of

the Convention.

     It follows that the application is manifestly ill-founded within

the meaning of Article 27 para. 2 (Art. 27-2) of the Convention.

     For these reasons, the Commission, unanimously,

     DECLARES THE APPLICATION INADMISSIBLE.

Secretary to the First Chamber       President of the First Chamber

     (M.F. BUQUICCHIO)                        (C.L. ROZAKIS)