Karin Vrang v Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Mr Justice Ouseley |
| Judgment Date | 09 May 2017 |
| Neutral Citation | [2017] EWHC 1055 (Admin) |
| Docket Number | Case No: CO/1232/2016 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 09 May 2017 |
[2017] EWHC 1055 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr. Justice Ouseley
Case No: CO/1232/2016
Mr. Rory Mullan (instructed by Direct Access) for the Claimant
Mr. Ewan West (instructed by General Counsel for HMRC) for the Defendant
Hearing dates: 18 and 19 January 2017
Written submissions: 31 January, 9 February and 15 February 2017
Approved Judgment
This claim arises out of action taken by Credit Suisse AG pursuant to the Agreement "on Cooperation in the area of Taxation", dated 6 October 2011, between the UK and the Swiss Confederation, the Agreement, and inaction on the part of the Claimant.
The Claimant is a Swedish national who worked in Switzerland for Credit Suisse Asset Management between 1998 and 2005, when she moved to London. She had three bank accounts in Switzerland with Credit Suisse AG, Credit Suisse, into which she put her earnings while there and her encashed Swiss pension. The money in those accounts was to be used when she retired to Sweden. Credit Suisse sent her two letters in 2012 alerting her to this Agreement. They warned her that if she did not give voluntary disclosure of her Credit Suisse accounts to Her Majesty's Revenue and Customs, HMRC, the Defendant, Credit Suisse would take from her accounts an unspecified one-off payment, calculated by reference to a formula in the Agreement. This payment would absolve her from all past UK tax liabilities on those assets including penalties and interest. It would, in return, enable her to maintain her anonymity from HMRC, and the confidentiality of her Credit Suisse bank accounts. She took no action in response to those letters.
On 31 May 2013, Credit Suisse, as it had warned it would do, took a payment from her accounts. It took £56715.49, increased in December 2013 to £ 57865. This was the sum required to be levied by applying the formula in the Agreement. She was issued with the certificate by Credit Suisse, which she could show to HMRC should they seek tax due in the past from her in respect of those assets. The sum was passed to the Swiss Federal Tax Administration, SFTA, which intermingled it with sums levied from other people, and transferred those intermingled monies in a series of lump sums to HMRC. In normal circumstances, as was intended by the Agreement, HMRC would not know who had paid the levy, or how much, unless the person from whom the levy had been taken, had to rely on the certificate for some tax-related purpose.
However, the Claimant was taken aback when that money, and so much of her savings, was taken. She wrote to Credit Suisse saying that the payment had been wrongly levied but took the issue no further after it rejected that claim. In June 2013, she made what she says is the disclosure which would have prevented the levy being applied, though that is not accepted by HMRC. She wrote to HMRC, and, aided now by her tax adviser, a desultory correspondence was conducted by him with HMRC. She said that a sum, which has varied between £1000 and £7000, was due in tax and sought a refund of most of the levy from HMRC. It refused to pay a refund on 9 December 2015 of the levy less any tax liabilities due, penalties and interest.
She challenges this refusal. Her grounds, as reformulated in the Skeleton Argument are (1) that there is no Parliamentary authority for the levying of the sum, and so it cannot be levied, where there is no tax due in that amount; (2) if there is legislative authority to that effect, it has been misconstrued in a number of respects by HMRC and (3) that HMRC has not exercised its powers, notably its discretionary powers, lawfully. Other themes in the Claimant's arguments were that HMRC had no power to retain money which did not represent a tax liability, when the tax payer asks for it back; on the proper interpretation of the Agreement, the sums had been "wrongly levied" and should be paid back; the levy breached the provisions of Article 63 of the Treaty on the Functioning of the European Union as it was a restriction on the free movement of capital, which lacked the necessary justification, and was disproportionate; it breached Article 1 of Protocol 1 ECHR, being an disproportionate interference with the Claimant's property rights. The Skeleton Argument also raised a number of new issues.
The Agreement with Switzerland
Mr Godfrey of HMRC's Offshore Coordination Unit explained the background to the Agreement in his witness statement. It was one in a sequence of measures addressing the use of offshore accounts for tax evasion. The Agreement improved on the arrangements in the Lichtenstein Disclosure Facility, LDF, and is the UK's second such bilateral agreement, but it is not at the level of the exchange of financial information intended under the Common Reporting Standard from 2018. The structure of the Agreement enabled the Swiss authorities to maintain the reputation of Swiss financial services for "customer discretion", as he put it; this meant that levy payments had to be made anonymously, whilst the prospect of avoiding the levy created the potential for the UK to receive "payments or information in respect of assets held by UK residents in what was previously an extremely discreet jurisdiction." The engagement pursuant to the Agreement therefore had to be undertaken between the banker, or Swiss paying agent, and its potential levy paying or disclosing customer, and had to be governed by Swiss law. Individuals had to decide by 31 May 2013 whether to make disclosure or to pay the levy. They could gain certainty, without revealing themselves or their financial affairs, by paying the levy. The individuals were unknown to HMRC and the intermingling of the individual levies by the SFTA before transmission to HMRC meant that that would continue. HMRC could not offer advice or assess liability to tax without disclosure. But it too would have certainty as to what monies had been raised.
The Agreement recites the parties' desire to strengthen their fiscal relations. Article 1 tells of its scope and purpose:
"1. The objective of this Agreement is to provide for bilateral cooperation between the Contracting States to ensure the effective taxation in the United Kingdom of relevant persons. The Contracting States agree that this Agreement will achieve a level of cooperation which has with regard to taxation in respect of income and gains on relevant assets an enduring effect equivalent to the outcome that would be achieved through an agreement to exchange information about such individuals on an automatic basis.
2. In furtherance of this objective, the competent authorities of the Contracting States shall provide assistance to each other in the following main respects:
a) the tax regularisation of relevant assets held in Switzerland by or for relevant persons;
b) the effective taxation of the income and gains on relevant assets held in Switzerland by or for relevant persons and measures to safeguard this Agreement's purpose;
c) under the terms set forth in this Agreement, further exchange of information by the United Kingdom to ensure the effective taxation of Swiss residents regarding assets in the United Kingdom."
Four dates are referred to in the text of which three matter: appointed day 2 is 31 December 2010; appointed day 3 is 31 May 2013; appointed day 4 is 30 June 2013. This case is only concerned with Part 2 of the Agreement "Regularising the past", and not with future liabilities. The Agreement entered into force on 1 January 2013.
Articles 5(1) and (3) provide:
"1. Subject to paragraph 3 a relevant person who is not a non-UK domiciled individual and who held relevant assets with a Swiss paying agent at appointed dates 2 and 3 shall have the option either to instruct the Swiss paying agent to make a one-off payment in respect of relevant assets in accordance with Article 9 paragraph 2 or to authorise the Swiss paying agent to make a disclosure in accordance with Article 10.
3. Where a relevant person fails to exercise by appointed date 3 one of the options described in paragraphs 1 and 2, then the Swiss paying agent shall levy the one-off payment in accordance with Article 9 paragraph 2."
Articles 6(1) and 7(1) relate to the mechanics of the notification:
" ARTICLE 6
Notification of the relevant person by Swiss paying agents
1. Swiss paying agents shall within two months of the date of entry into force of this Agreement give notice to the holders of accounts and deposits in respect of which a relevant person has been identified about the content of this Agreement and the resulting rights and duties of relevant persons.
ARTICLE 7
Rights and duties of relevant persons
1. The relevant person must inform the Swiss paying agent in writing and by appointed date 3 which option described in Article 5 paragraphs 1 and 2 he or she chooses with respect to each account or deposit in existence at appointed date 3. This notification is irrevocable. Where a notification was made before the date of entry into force of this Agreement, it shall become irrevocable if it has not been revoked at that date."
Article 9(1) contains the obligation on the Swiss paying agent, the bank usually, and here Credit Suisse, to raise the levy:
"(1) Subject to Articles 8 and 13, a Swiss paying agent shall on appointed date 3 levy a one-off payment on the relevant assets of relevant persons."
The one-off payment is to be calculated in accordance with the Schedule to the Agreement. The algorithm defies simple explanation, but it takes into account the value of the asset, the period of ownership and the profile of its accumulation. The more recent the increase in its...
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