[2009] UKFTT 69 (TC)

TC00010

NOTICES UNDER TMA 1970 s.20 without naming the taxpayer – whether subs (8A) satisfied – yes – whether consent should be given to the Notices – yes

THE SPECIAL COMMISSIONERS

	APPLICATION BY THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS TO SERVE A SECTION 20 NOTICE ON FINANCIAL INSTITUTIONS Nos 6 and 7 IN RESPECT OF CUSTOMERS WITH UK ADDRESSES HOLDING NON-UK ACCOUNTS

			Special Commissioner:	DR JOHN F AVERY JONES CBE

Sitting in private in London on 26 March 2009

Stephen Rimmer of HM Revenue and Customs Enforcement and Compliance, and Dennis Dixon of the Solicitor’s Office, HM Revenue and Customs, for the Applicants

© CROWN COPYRIGHT 2009

ANONYMISED DECISION

1.	This is an ex-parte application by the Commissioners for HM Revenue and Customs for consent to serve Notices under section 20(8A) of the Taxes Management Act 1970 on two Financial Institutions belonging to the same group (“the Financial Institutions”).  The Notices seek documents about customers with UK addresses with non-UK bank and/or investment accounts held with the Financial Institutions their associated companies and/or a third party. The Revenue were represented by Mr Stephen Rimmer of HM Revenue and Customs Enforcement and Compliance (“the Officer”), and Mr Dennis Dixon of their Solicitor’s Office.  
2.	In advance of this application I had a written brief from the Revenue consisting of 20 pages with numerous exhibits contained in a ring binder.  The Financial Institutions also made written representations of 7 and 6 pages respectively.  
3.	Relevant parts of section 20 of the Taxes Management Act 1970 are:
“…(3) Subject to this section, an inspector may, for the purpose of enquiring into the tax liability of any person (“the taxpayer”), by notice in writing require any other person to deliver to the inspector or, if the person to whom the notice is given so elects, to make available for inspection by a named officer of the Board, such documents as are in his possession or power and as (in the inspector’s reasonable opinion) contain, or may contain, information relevant to any tax liability to which the taxpayer is or may be, or may have been, subject, or to the amount of any such liability; and the persons who may be required to deliver or make available a document under this subsection include the Director of Savings. 
…
 (6) The persons who may be treated as “the taxpayer” for the purposes of this section include a company which has ceased to exist and an individual who has died; ... 
 (7) Notices under subsection (1) or (3) above are not to be given by an inspector unless he is authorised by the Board for its purposes; and— 
(a)   a notice is not to be given by him except with the consent of a General or Special Commissioner; and 
 (b)   the Commissioner is to give his consent only on being satisfied that in all the circumstances the inspector is justified in proceeding under this section. 
(8) Subject to subsection (8A) below, a notice under subsection (3) above shall name the taxpayer with whose liability the inspector (or, where section 20B(3) below applies, the Board) is concerned. 
(8A) If, on an application made by an inspector and authorised by order of the Board, a Special Commissioner gives his consent, the inspector may give such a notice as is mentioned in subsection (3) above but without naming the taxpayer to whom the notice relates; but such a consent shall not be given unless the Special Commissioner is satisfied— 
 (a)   that the notice relates to a taxpayer whose identity is not known to the inspector or to a class of taxpayers whose individual identities are not so known; 
 (b)   that there are reasonable grounds for believing that the taxpayer or any of the class of taxpayers to whom the notice relates may have failed or may fail to comply with any provision of the Taxes Acts; 
 (c)   that any such failure is likely to have led or to lead to serious prejudice to the proper assessment or collection of tax; and 
 (d)   that the information which is likely to be contained in the documents to which the notice relates is not readily available from another source. 
 (8B) A person to whom there is given a notice under subsection (8A) above may, by notice in writing given to the inspector within thirty days after the date of the notice under that subsection, object to that notice on the ground that it would be onerous for him to comply with it; and if the matter is not resolved by agreement, it shall be referred to the Special Commissioners, who may confirm, vary or cancel that notice.”
4.	The following is a recital of the factual basis as I understand it:
(1)	The first Financial Institution has branches or associated companies in a number of jurisdictions outside the UK and the second has an associated company in Jersey.  The Financial Institutions hold information on their computers in the UK or have access to information held on computers outside the UK on an estimated [number withheld] individual customers with UK addresses and non-UK bank or investment accounts.
(2)	The Revenue are currently investigating the use of offshore accounts by UK residents, in the course of which an offshore disclosure facility took place during 2007.  Although not in connection with a s 20 Notice to these Financial Institutions the Revenue have obtained information relating to a number of customers of the Financial Institutions on which the average tax loss is £61,671 per case.  
(3)	Of the persons with foreign bank accounts for which the Revenue have previously obtained information from other financial institutions the number making notifications under the offshore disclosure facility or otherwise being investigated that resulted or are expected to result in a tax loss was 25.24% of cases. This percentage excludes accounts of those for which the Revenue have no information about the person and cases where they know about the person but no overseas income has been disclosed and who have not taken part in the disclosure.  It is therefore likely to be the minimum percentage.
(4)	Because the Financial Institution’s clients are larger than those of other institutions from which the 25.24% figure was derived and are also likely to have a significant number of non-domiciled customers, the Revenue have used a [number withheld]% figure in estimating the tax loss.  This works out at about £9.5m which the Officer considers is likely to be the yield if the Notices are issued.
5.	I emphasise that no allegation is made against the Financial Institutions. Prior to the issue of the precursor letter the Financial Institutions and the Revenue have had four meetings and a telephone conference starting on 4 June 2008.  As a result of this dialogue the Financial Institutions have agreed the form of the Notices, but without agreeing that they should be issued. 
6.	The first set of representations made by both Financial Institutions relate to the European Union Savings Tax Directive (“EUSTD”).  They contend that because of the EUSTD the identity of many of those covered by the Notices is known to the Revenue so that subs (8A)(a) is not satisfied.  The Revenue reply that information covered by the EUSTD from 1 July 2005 is excluded from the Notices and that the Revenue do not know which of those persons had accounts before that date; the alternative route of applying for s 20(3) notices for all of them is so burdensome that the information is not “readily available.”  
7.	I consider that by excluding those who have authorised exchange of information for EUSTD from 1 July 2005 (or later date of disclosure) the Revenue have gone as far as is necessary.  Such information is no more than a guide to the past and it would be disproportionate to suggest that those customers should be individually investigated instead of being included in the Notices for earlier periods when the Revenue cannot know whether the earlier periods are relevant to them.  It is always the case that the class will include some people who are known to the Revenue because they have complied fully with their tax obligations.  As I said in Re an Application by Revenue and Customs Commissioners to Serve section 20 Notice (No 2) [2006] STC (SCD) 360 at [22]:
“Further, the solicitors say that the Revenue are not asking for documents relating to a class of taxpayers whose individual identities are not known to the Revenue (s 20(8A)(a)) because the class will include persons whose identities are already known to the Revenue. They argue that 'Unless they are removed, [the Financial Institution] will know any notice to be invalid in relation to some thousands of customers ostensibly caught by it; but the Financial Institution will not know which, with the result that it cannot know in respect of any customer whether it has a duty to disclose or not.' In their latest memorandum they clarify this by saying that known to the Revenue means known in this context, ie in the context of seeking an order for disclosure under s 20(8A). There are 9,289 customers of the Financial Institution with non-UK accounts whose identities are known to the Revenue, which the solicitors say shows that the evidence includes irrelevant names. It is important to note that the paragraph immediately following, s 20(8A)(b), requires that there are reasonable grounds for believing that any of the class of taxpayers may have failed (or may fail) to comply with any provision of the Taxes Acts. In spite of the solicitor's clarification of their argument I still consider that there is a logical flaw in it. If the class includes any members of the class who may have failed to comply, it must equally include other persons who have complied, whose identity will obviously be known to the Revenue. Their reading effectively rewrites paragraph (b) so as to require that there are reasonable grounds for believing that all members of the class may have failed to comply with their tax obligations. The inclusion as members of the class of persons who the Revenue know have complied with their tax obligations cannot possibly have been intended by Parliament to invalidate the whole of the notices. Taxpayer confidentiality prevents the Revenue from disclosing to the Financial Institution the names of the customers known to them.”
Exactly the same applies to those for whom the Revenue have information for part of the period covered by the Notices.
8.	The first Financial Institution contends that the law in one of the jurisdictions in which accounts are held provides for local reporting of accounts which information is passed on to the Revenue by the local tax authority.  The Revenue agree that they receive bulk data from this source but it would be difficult to extract information obtained from a particular broker which is the associated company of the first Financial Institution, but they have attempted to do so and have not found any records from that company.  It seems to me that there is nothing in this point.
9.	Both Financial Institutions contend that the Revenue has so much information from the earlier notices to other institutions and other sources that they will not be able to use the information obtained from the Notices for some time.  The Revenue point to the yield so far obtained and their on-going investigations.  They do not accept that it will take several years to process the data already held.  I accept the Revenue’s view. 
10.	Based on previously published figures the Financial Institutions estimate that the yield would be £6.6m and £230K respectively, which is not a figure that might lead to serious prejudice to the proper collection of tax, particularly when compared to the estimate of £1.5bn in the case from which I have quoted above.  The Revenue point to the figure of £61,671 per case relating to customers of the Financial Institutions given above which results in a higher estimate.  They also contend that if one related Institution has a smaller number of customers than another this should not be a reason for not issuing the Notice to the smaller one.  In relation to the estimate of £1.5bn the Revenue agree this was an overestimate which arose because the financial institution in that case had told them that there were X number of customers affected by the notice, whereas the correct figure turned out to be 17% of X.  The Revenue made their £1.5bn estimate on the basis of X and as a result this was a serious over-estimate.  This error had been made known to me earlier and it is right that it should be corrected in a document available to the public.  If this is corrected, the estimate originally made was in the range of 20% to 26% of cases resulting in a tax loss, and my decision was based on 20%, whereas the figure currently achieved is 25.24% as recorded above.  I do not consider that the size of the figures, whether individually or together, in this case means that the condition that there must be serious prejudice to the proper collection of tax is not satisfied.
Conclusion
11.	I do not consider that any of these representations should prevent the issue of the Notices.   I have considered the meaning of the words of subs (8A) in a number of earlier applications (Re an Application by Revenue and Customs Commissioners to Serve section 20 Notice [2006] STC (SCD) 360, [2007] STC (SCD) 202, 208, 216, and 222) and as no point has been made by the Financial Institution apart from that dealt with above, I shall adopt that analysis.  
12.	In the light of the above I am satisfied first, that the Notices relate to a class of taxpayers whose individual identities are not known.  Secondly, in the light of the figures, that there are reasonable grounds for believing that any of the class of taxpayers to whom the Notices relate may have failed (or may fail) to comply with any provision of the Taxes Acts.  Thirdly, that in the light of these figures and the Officer’s estimate of a yield of £9.5m, any such failure is likely to have led (or to lead) to serious prejudice to the proper assessment or collection of tax.  And fourthly, that the information which is likely to be contained in the documents to which the Notices relate is not readily available from another source (and in particular most of the information required by the Notices is not known even for those whose identities are known to the Revenue).  Accordingly, section 20(8A) is satisfied.
13.	Finally, I consider whether under section 20(7) I am satisfied that in all the circumstances the Officer is justified in proceeding under section 20.  In doing so I must weigh up the burden imposed on the Financial Institution with the benefit to the Revenue.  In my view the information that the Revenue has already obtained raises serious questions that merit investigation and cannot be investigated by any other means.  Accordingly I consent to the issue of the Notices.
14.	I have written these reasons for my decision in the expectation that the Revenue will send it to the Financial Institutions and their advisers and if it is necessary I authorise them to do so.  If there is anything in this decision that the Revenue do not want to disclose to the Financial Institutions I authorise them to apply to me for it deletion before it is sent to the Financial Institutions.  If either the Revenue or the Financial Institutions have suggestions for anonymisation I shall take these into account before authorising publication.

JOHN F. AVERY JONES

SPECIAL COMMISSIONER
RELEASE DATE: 30 March 2009

SC 2007/09