R and Others v The Commissioners for HM Revenue & Customs
| Jurisdiction | England & Wales |
| Judge | Mr Justice Sales |
| Judgment Date | 25 October 2013 |
| Neutral Citation | [2013] EWHC 3258 (Admin) |
| Docket Number | Case No: CO/9858/2012 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 25 October 2013 |
[2013] EWHC 3258 (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 Sales
Case No: CO/9858/2012
The Queen on the application of
Hugh Tomlinson QC, Jessica SimorQC (instructed by Olswang) for the Claimants
James Eadie QC, David Pievsky (instructed by HMRC Solicitor) for the Defendant
Hearing date: 9/10/13
Introduction
This is an application for judicial review of a decision of the Defendants ("HMRC"), acting by one of their most senior officials, the Permanent Secretary for Tax at the relevant time (David Hartnett — "Mr Hartnett"), to disclose information relating to the First Claimant ("Ingenious Media") and the Second Claimant ("Mr McKenna") in an "off the record" briefing with two journalists from The Times newspaper on 14 June 2012. The journalists, Alexi Mostrous and Fay Schlesinger, published articles in The Times on 21 June 2012 regarding tax avoidance schemes, including film investment schemes, in which they named Ingenious Media and Mr McKenna, among others, as the promoters of such schemes. In their articles, Mr Mostrous and Ms Schlesinger drew upon and quoted statements made by Mr Hartnett in the briefing regarding the Claimants. The Claimants seek declaratory relief that the disclosures made by Mr Hartnett were unlawful.
The Facts
The facts are shortly stated. Ingenious Media and its subsidiaries are an investment and advisory group with a specialisation in investment work in the media and entertainment industries, including promoting film investment schemes in the form of partnerships which allow participating taxpayers to take advantage of certain tax reliefs and exemptions. Mr McKenna is the founder and Chief Executive Officer of the Ingenious Media group.
In spring 2012 Mr Mostrous approached HMRC to ask for a background briefing on the issue of tax avoidance, which was attracting much attention in the media. Mr Mostrous was interested in finding out more about HMRC's approach to countering avoidance. Paul Franklin, a senior member of HMRC's press office, spoke to Mr Mostrous and suggested a meeting with Mr Hartnett.
It was agreed that Mr Hartnett would have a meeting with Mr Mostrous and Ms Schlesinger to provide them with a background briefing on tax avoidance issues and that it should be "off the record". As Mr Franklin explained in his evidence, a background briefing is intended to inform the piece which a journalist proposes to write. It helps avoid inaccuracies. The understanding between the press office and journalists is that nothing said in an "off the record" background briefing will be published. Mr Hartnett's understanding of the concept of an "off the record" briefing was the same. At the briefing itself there were a number of explicit references to it being "off the record" and at one point Mr Mostrous referred to a particular statement by Mr Hartnett and commented that it was "a shame to waste it off the record" (i.e. Mr Mostrous appeared to acknowledge that he could not publish anything said at the meeting).
So far as HMRC were concerned, the interview was to be with responsible journalists from a national newspaper of good repute who could be relied upon not to publish anything said by Mr Hartnett in the course of the briefing. HMRC were surprised and disappointed when on 21 June 2012 remarks made by Mr Hartnett at the "off the record" briefing were published by Mr Mostrous and Ms Schlesinger, in breach of the understanding between them.
In advance of the meeting with Mr Hartnett, Mr Mostrous had conversations with Mr Franklin and sent through questions on issues relating to HMRC's work in relation to tax avoidance schemes, including film investment schemes. Mr Mostrous told Mr Franklin that in the course of its research The Times had amassed a good deal of information about tax avoidance schemes which he would be prepared to make available to HMRC if the lawyers for The Times agreed. Mr Franklin briefed Mr Hartnett about this. Mr Hartnett was keen to obtain any information which might be of assistance to HMRC.
Mr Hartnett was also keen to provide a briefing to the journalists in order to influence their views about matters affecting HMRC and the challenges faced by HMRC and to try to influence the messages about tax avoidance schemes which the journalists would ultimately convey to the public in their articles on the subject of tax avoidance. In particular, there was at this time media speculation about the willingness of HMRC to enter into "cosy" deals with certain taxpayers, thereby being unduly generous and lenient to them in the collection of tax, which Mr Hartnett wished to counter. He also wished to impress on the journalists and, through them, the wider public HMRC's disapproving and sceptical attitude in relation to film investment schemes because of concerns that they were simply being used as devices to avoid tax rather than for genuine commercial reasons and in view of the big risk presented by them in terms of the amount of potential tax lost through use of them; and that HMRC were serious in trying to combat tax avoidance through use of such schemes. As Mr Hartnett explained in his evidence, he "hoped that as a result of this briefing, the journalists would be prompted to emphasise to the public that investors in such schemes would be asked searching questions by the tax authorities, and that this might have the effect of discouraging people from investing in them."
It is relevant at this point to say something about film investment schemes, tax planning, tax avoidance and tax evasion. The tax regime allows for certain reliefs for individuals in connection with investment through partnership vehicles in the production of films, which can be set against their personal liability to pay income tax. Ingenious Media and Mr McKenna, among others, promote investment schemes marketed to wealthy individuals based on utilising these tax reliefs so as to minimise the tax they pay. HMRC are sceptical whether these schemes have a sufficient genuine commercial purpose, or whether they are primarily aimed at avoiding payment of income tax which would otherwise be due.
Tax evasion is the term usually used to refer to plainly illegal attempts to evade payment of tax which is clearly due and payable. There is no suggestion, and was none by Mr Hartnett, that the Claimants have engaged in tax evasion in this sense in operating their film investment schemes.
Distinct from issues of tax evasion, the notion of tax avoidance is altogether more ambiguous. It is a grey area. The tax code contains many reliefs of various kinds in relation to a range of different taxes, and taxpayers can be expected to seek to take advantage of them in the ordinary course of managing their affairs so as to achieve tax efficiency in the sense of minimising the tax they pay. This is tax avoidance in a certain sense, but often the term "avoidance" is used in a more pejorative sense. Beyond entirely normal forms of tax efficient planning there may be ways in which a taxpayer changes his conduct in light of tax advantages available under the tax code (for instance, because of the availability of a tax relief a particular course of conduct may appear commercially viable or attractive whereas otherwise it would not be), and there are different shades of this along a spectrum from minor adjustments in ordinary commercial behaviour to engaging in transactions not for any significant commercial purpose but with the predominant objective of simply avoiding liability to tax in relation to the taxpayer's other ordinary activities. It is well known that the elaborate nature of the tax code, the diverse nature of tax reliefs it contains, the difficulty of drafting them with precision so as to cover only beneficial and acceptable forms of tax efficient planning while excluding less acceptable forms of tax avoidance thought to be contrary to the public interest, and the ingenuity of taxpayers and their advisers in seeking to minimise their tax liabilities pose a significant difficulty for tax authorities around the world. It is one reason why tax codes are frequently amended, to catch and stop forms of tax avoidance which the tax authorities and the public come to regard as unacceptable or illegitimate and unfair in some way; why certain aspects of the tax code allow for specific measures to be taken by HMRC to challenge the legitimacy of transactions which they regard as predominantly designed to avoid tax rather than for genuine commercial purposes; and why in some jurisdictions a general anti-avoidance rule is operated. There may also be transactions or schemes which are more borderline, where the tax authorities have an attitude of disapproval and scepticism as to whether they fall within the spirit of the relevant reliefs or exemptions in the tax code, without necessarily going so far as to seek to take action to prevent them having effect.
In relation to the film investment schemes of the kind promoted by Ingenious Media and Mr McKenna, there is a substantial difference of view between the Claimants and HMRC. The Claimants maintain that their schemes are used for genuine commercial purposes to finance the making of films, and point to examples where films have been financed, produced and distributed at a profit. HMRC, on the other hand, have for some time had an attitude of scepticism and...
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