HM Revenue and Customs v Parissis
| Jurisdiction | UK Non-devolved |
| Judgment Date | 01 April 2011 |
| Neutral Citation | [2011] UKFTT 218 (TC) |
| Date | 01 April 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 218 (TC)
Mrs B Mosedale (Tribunal Judge) (Chairman), Mr C Jenkins (Tribunal Member)
Mr P Shea, officer of HMRC, for the Appellants
Mr A Brown, of Andrew Brown 57 Ltd, for the Respondents
Information notice - whether documents in "possession or power" of respondents - meaning of "power" not restricted to immediately enforceable legal right - penalties imposed
1.The hearing concerned applications by HMRC for penalties against the three Respondents under Taxes Management Act 1970 section 98 subsec-or-para 1 section 100Cs. 98(1)(b)(i) and s. 100CTaxes Management Act 1970 ("the Act") in respect of alleged failure to comply with notices issued under Taxes Management Act 1970 section 20 subsec-or-para 1s. 20(1) of the same Act.
2.The three applications were heard together by request of HMRC and with the consent of the Respondents.
3.On 5 September 2008, with the approval of the Oxford General Commissioners, two notices under s. 20(1) of the Act were issued to Mr Towland, two to Mr Harrison and two to Mr Parissis. One of the two notices issued to each Respondent required under s. 20(1)(b) particulars to be furnished to HMRC and the other under s. 20(1)(a) required documents to be delivered to HMRC.
4.The three Respondents to these proceedings challenged the lawfulness of the issue of the notices in the High Court. These proceedings were heard in December 2009 and were reported at [2009] EWHC 3734 (Admin) (R (on the application of Parissis) v Grinyer and Commissioners for the General Purposes of Income Tax, Oxford City Division.) The Respondents were unsuccessful. Following the outcome of that challenge, the three Respondents then provided documents and particulars to HMRC.
5.HMRC accept that the three notices requiring particulars, one to each Respondent, have been complied with and this hearing was not concerned with them. HMRC also accept that some documents were provided in compliance with the three notices, one to each Respondent, requiring production of documents. Their contention is that the documents supplied only partly complied with these Taxes Management Act 1970 section 20s. 20 notices.
6.The Respondents' contention is that the s. 20 notices have been fully complied with because the documents demanded by the s. 20 notices which have not been produced to HMRC are not (they contend) in their "possession or power". Section 20 of the Act in so far as relevant read as follows:
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20(1)Subject to this section, an inspector may by notice in writing require a person-
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(a) to deliver to him such documents as are in the person's possession or power and as (in the inspector's reasonable opinion) contain, or may contain, information relevant to-
(i) any tax liability to which the person is or may be subject, or
(ii) the amount of any such liability …
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7.There was no dispute before us on the validity of the s. 20 notice and in particular whether the documents might contain information relevant to the Respondents and for that reason there is no need for us to set out in detail the information HMRC set before us as to what they believed to be the onshore and offshore structures with which they considered the Respondents connected in some way.
8.In summary, the Respondents were the founders and owners of Path Group PLC. That company owned Path Distribution Ltd and IXOS Ltd (both UK companies). IXOS Ltd sold some intellectual property rights to another company called IXOS Ltd, a company incorporated in the British Virgin Islands. We will refer to it as "BVI" to avoid confusion. BVI granted a licence over some of the IXOS intellectual property to Path Group PLC on 2 January 2001. This was renewed and extended in 2006.
9.In 2002 other intellectual property rights (relating to STOREX) were transferred by the owner to BVI but paid for by Path Distribution Ltd. In 2002 Path Group PLC agreed to pay BVI royalties on the use of the STOREX brand name.
10.There was a management buy-out of Path Group PLC when the Respondents sold the worldwide group of Path companies to a team of directors. In this agreement ("the Acquisition Agreement") the intellectual property held by BVI was also transferred to the purchasers.
11.BVI has now been dissolved but it was owned by the Bourse Trust Company Ltd ("Bourse") (a company incorporated and based in Guernsey). Employees of this company were the directors of BVI. Bourse held the shares on trust equally between three trusts, the Ionia Trust, the Jasper trust and the Caraudavian Trust. Other assets are also held by these trusts.
12.Mr Parissis was the settlor of the Ionia Trust and the beneficiaries are himself and members of his family. Mr Towland was the settlor of the Jasper Trust and the beneficiaries are himself and members of his family. Mr Parissis was also the settlor of the Caraudavian Trust but the beneficiary of the trust is Mr Ian Harrison.
13.In the Acquisition Agreement, the Respondents describe themselves as the beneficial owners of BVI and guarantee the obligations of BVI under the agreement.
14.The Ionia trust has made loans to Mr Parissis, the Jasper Trust has made loans to Mr Towland and members of his family; the Caraudavian trust has made loans to Mr Harrison.
15.HMRC gave the Tribunal a list of the documents requested which have not been supplied and for convenience in this Decision Notice we will refer to them as "missing documents". Mr Brown made no objections to the accuracy of this list. The missing documents we find are:
(2) The trust deed for the Caraudavian Trust;
(3) The letter of wishes (or equivalent document) for the Caraudavian Trust;
(4) (for all 3 trusts) all other correspondence and documentation issued when the trust was set up.
(5) All correspondence which has been generated in the intervening period for the Caraudavian trust.
(6) (for all 3 trusts) the trust accounts for all years from set up;
(7) (for all 3 trusts) the trust bank statements (or client ledger account if no separate bank account was operated for the trusts).
(8) Copies of all accounts drawn up by BVI since it was incorporated.
16.HMRC considered it was for the Respondents to demonstrate that the documents requested were not in their power. Mr Brown disagreed with this.
17.This is HMRC's application for a penalty and for them to satisfy us that the documents have not been provided. This point was not in dispute and it must be right that it is for HMRC to satisfy the Tribunal that the Respondents are liable to a penalty.
18.Nevertheless, it must also be the case that if the Respondents wish to raise a specific defence to a penalty, such as reasonable excuse were it applicable, it would be for them to prove it. In this case, the issue is whether the documents are in the Respondents' possession or power. Who has the burden of proof? Is it for HMRC to show the documents are within the Respondents' possession or power or for the Respondents to show that they are not?
19.It seems to us that it is HMRC's application for a penalty and it is for them to satisfy us that the documents are in the Respondents' possession or power. We bear in mind it is hard to prove a negative. But, we think, although HMRC must raise a prima facie case that the documents are in the Respondents' possession or power then it is for the Respondents to show that they are not.
20.It was the Respondents' main case that they had no power over the missing documents. Mr Brown however also maintained that they might not exist. On this, as with possession or power, we think HMRC must establish a prima facie case that the documents exist. It is then for the Respondents to prove that they do not.
21.Item (7) BVI accounts: Mr Brown pointed out that the British Virgin Islands law does not require companies to produce accounts and HMRC did not dispute this. However, they produced a set of accounts which were later said to be in draft for BVI dated y/e 31 December 2006 which included comparatives for the previous year end. These had been given to HMRC by Path Group plc. Both sides were agreed (although the documentary evidence was not produced to us) that Path Group plc had been asked to provide all accounts for BVI and had replied saying that this one set of accounts was all they had.
22.The only other evidence led on this from the Respondents was from Mr Parissis that he did not know whether BVI had produced accounts (other than those for 2006).
23.We find it most improbable that the shareholder, Bourse, with its responsibilities as trustee, would not require the Directors to produce accounts or that the Directors of a commercial company would not chose to produce accounts, whether or not required to do so by law. Indeed they clearly did produce accounts or draft accounts for 2006 and 2005. We find it is more likely than not that accounts were produced for every year the company was in existence.
24.It was also suggested to us by Mr Brown that the accounts, if they existed, might have been destroyed once BVI was dissolved. Again we find this improbable: why would a...
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