Court confirms HMRC information powers extend overseas

HMRC has won an appeal at the Court of Appeal over its decision to serve an information request to a long-standing non-UK resident, in a landmark decision about the scope of the tax authority’s powers beyond the UK borders

The case concerns Tony Jimenez, the former co-owner of Charlton Athletic football club and a previous vice-president of Newcastle United, who has not been resident in the UK since 2002. [The Queen on the application of Tony Michael Jimenez and the First Tier Tribunal (Tax Chamber) Her Majesty’s Commissioners for Revenue and Customs, [2019] EWCA Civ 51]

The Court of Appeal was asked to hear an appeal against earlier decisions by the First Tier Tribunal (FTT) and a judicial review, which had concluded that HMRC acted beyond its powers in seeking information from Jimenez once he was no longer resident.

The court heard that Jimenez, who is a UK national, now resides in Dubai, having moved from the UK first to Cyprus and then to the UAE. He also has a Spanish passport.

The court was told it is common ground that he has been a UK taxpayer for some of this time, although the precise period is in dispute, and that both his past and present tax position are currently under investigation by HMRC.

As part of this investigation, in May 2016 HMRC issued a notice under paragraph 1 of Schedule 36 to the Finance Act 2008 (FA 2008) to Jimenez at his address in Dubai. Attached to the notice was a schedule of the information which he was asked to produce including details of bank and credit card accounts since 6 April 2004 and a schedule of his visits to the UK between that date and 5 April 2013.

The sole issue, both at this appeal and earlier, was whether paragraph 1 of Schedule 36 authorises a taxpayer notice to be issued and sent to a taxpayer who at the relevant time was resident outside the UK. At judicial review, the judge held that the power could not be exercised extra-territorially and quashed the notice, which he said had not been lawfully given.

The Court of Appeal considered the arguments which had been put forward in favour of the view that HMRC’s powers stop at the UK border. These include the claim that schedule 36 is not intended to subvert the sovereignty of foreign states, and the fact that the wording does not state it can be used extra-territorially.

However, one of the three appeal judges stated: ‘A paragraph 1 notice can only be given to someone who is or may be a UK taxpayer and it is this status rather than his place of residence which is key to availability and operation of the power.’

The judge went on to say: ‘In the case of taxpayers resident abroad HMRC can reasonably require production to take place in England unless an alternative is agreed.

‘There is nothing in paragraph 56 which limits production to the territory where the taxpayer happens to be resident at the time of the notice so that an objection to the service of the notice abroad as a species of enforcement in that jurisdiction will be limited in practice to the fact that the notice is sent to an address in that country.’

A second of the judges said that the most substantial argument made on behalf of Jimenez, is that interpreting paragraph 1 of Schedule 36 as having extra-territorial effect would be contrary to international law, as it would offend state sovereignty by violating the principle that a state must not enforce its laws on the territory of another state without that other state's consent.

Counsel for Jimenez submitted that sending a notice to him in Dubai requiring him to provide specified information and documents, backed by a threat of financial penalties if he did not, amounted to an impermissible exercise of such enforcement jurisdiction.

However, the appeal judges also dismissed this argument, saying the contention that giving a taxpayer notice to a person who is abroad offends the sovereignty of the state in which that person is located had not been proved.

The judge stated: ‘Delineating the precise boundary between prescriptive (or legislative) and enforcement jurisdiction in international law is far from straightforward.

‘But I do not accept that sending a notice by post to a person in a foreign state requiring him to produce information that is reasonably required for the purpose of checking his tax position in the UK violates the principle of state sovereignty.

‘Such a measure does not involve the performance of any official act within the territory of another state – as would, for example, sending an officer of Revenue and Customs to enter the person's business premises in a foreign state and inspect business documents that are on the premises pursuant to paragraph 10 of Schedule 36.

‘Nor does it seem to me objectionable that the notice is expressed as a command rather than a mere request for the supply of information.’

As a result, HMRC’s appeal was allowed, meaning its powers to seek information from non-UK individuals about their tax affairs after they have left the UK have been confirmed.

Jimenez has made no comment on the latest ruling.

The Queen on the application of Tony Michael Jimenez and the First Tier Tribunal (Tax Chamber) Her Majesty’s Commissioners for Revenue and Customs, [2019] EWCA Civ 51 is here.

Report by Pat Sweet

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