R (on the application of Derrin Brothers Properties Ltd and Others) v A Judge of the First-tier Tribunal (Tax Chamber) and Others

Hearing dates: 8 th December 2015

The Chancellor ( Sir Terence Etherton):

This appeal concerns the powers of the Commissioners for Her Majesty's Customs and Excise ("HMRC") pursuant to schedule 36 to the Finance Act 2008 ("schedule 36") to require a third party to provide information and documents for checking the tax position of a resident or overseas taxpayer by way of assistance to another country, in the present case Australia. It raises issues as to the relationship between those powers and the European Convention on Human Rights ("the Convention").

It is an appeal from the order of Mrs Justice Simler of 15 April 2014 in the Administrative Court dismissing the applications of the appellants for judicial review of (1) the decisions of Judge Roger Berner in the First-tier Tax Chamber ("the FTT") in ex parte hearings on 23 November 2012 and 9 January 2013 pursuant to paragraph 3 of schedule 36 approving the giving of notices by HMRC to third parties, which required the third parties to provide to HMRC documents and information of the 24 appellants, and (2) the giving of those notices.

The legal framework

The United Kingdom was a founder member of the Joint International Tax Shelter Information Centre ("the JITSIC"), together with the USA, Australia and Canada. The purpose of the JITSIC is to facilitate close working between the tax administrations of its members on large and complex issues where tax revenue is at risk.

Article 27 of the UK/Australia Double Taxation Convention ("the DTC"), which sets out the obligations of the UK and Australia relating to the exchange of information, provides as follows so far as relevant:

"Exchange of information

1. The competent authorities of the Contracting States shall exchange such information as is foreseeably relevant to … the domestic laws of the Contracting States concerning taxes to which this Convention applies insofar as the taxation under those laws is not contrary to this Convention. … Any information received by a Contracting State shall be treated as secret in the same manner as information obtained under the domestic law of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes to which this Convention applies. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.

2. If information is requested by a Contracting State in accordance with this Article, the other Contracting State shall obtain that information in the same manner and to the same extent as if the tax of the first-mentioned State were the tax of that other State and were being imposed by that other State, notwithstanding that the other State may not, at that time, need such information for the purposes of its own tax."

Under UK domestic law powers are conferred on HMRC by schedule 36 to call for information and documents. Paragraphs 2 and 3 of schedule 36 are as follows:

"2. Power to obtain information and documents from third party

(1) An officer of Revenue and Customs may by notice in writing require a person—

(a) to provide information, or

(b) to produce a document,

if the information or document is reasonably required by the officer for the purpose of checking the tax position of another person whose identity is known to the officer ("the taxpayer").

(2) A third party notice must name the taxpayer to whom it relates, unless the tribunal has approved the giving of the notice and disapplied this requirement under paragraph 3.

(3) In this Schedule, "third party notice" means a notice under this paragraph.

3. Approval etc of taxpayer notices and third party notices

(1) An officer of Revenue and Customs may not give a third party notice without—

(a) the agreement of the taxpayer, or

(b) the approval of the tribunal.

(2) An officer of Revenue and Customs may ask for the approval of the tribunal to the giving of any taxpayer notice or third party notice

(2A) An application for approval under this paragraph may be made without notice (except as required under sub-paragraph (3)).

(3) The tribunal may not approve the giving of a taxpayer notice or third party notice unless—

(a) an application for approval is made by, or with the agreement of, an authorised officer of Revenue and Customs,

(b) the tribunal is satisfied that, in the circumstances, the officer giving the notice is justified in doing so,

(c) the person to whom the notice is to be addressed has been told that the information or documents referred to in the notice are required and given a reasonable opportunity to make representations to an officer of Revenue and Customs,

(d) the tribunal has been given a summary of any representations made by that person, and

(e) in the case of a third party notice, the taxpayer has been given a summary of the reasons why an officer of Revenue and Customs requires the information and documents.

(4) Paragraphs (c) to (e) of sub-paragraph (3) do not apply to the extent that the tribunal is satisfied that taking the action specified in those paragraphs might prejudice the assessment or collection of tax.

(5) Where the tribunal approves the giving of a third party notice under this paragraph, it may also disapply the requirement to name the taxpayer in the notice if it is satisfied that the officer has reasonable grounds for believing that naming the taxpayer might seriously prejudice the assessment or collection of tax."

An officer who gives a third party notice must give a copy to the taxpayer to whom it relates (para. 4(1) of the schedule).

A third party notice can be enforced only in respect of documents in the possession or power of the recipient of the notice (para.18).

For the purposes of paragraph 2(1), "checking" includes carrying out an investigation or enquiry of any kind (para. 58), and "tax position" includes a person's position as regards past, present and future liability to pay any tax, including relevant foreign tax (paras. 63 and 64). An "authorised officer", for the purposes of paragraphs 2 and 3, is an officer of HMRC who is, or is a member of a class of officers who are, authorised by HMRC for the purpose of that provision (para. 59).

Part 7 of schedule 36 imposes penalties for non-compliance with an information request and for inaccuracies in the information or documentation produced.

It is to be noted, and is material to this appeal, that the third party to whom a third party notice is addressed and the taxpayer to whom the third party notice relates are treated differently in relation to the third party notice. The third party recipient is not only required to be told in the notice the name of the taxpayer being investigated (para. 2(2)), but must also be given advance warning that the documents identified are required and given a reasonable opportunity to make representations (para. 3(3)(c)), and a summary of those representations must be given to the FTT (para. 3(3)(d)). The taxpayer, on the other hand, must be given a copy of the third party notice (para 4(1)) and a summary of the reasons why the information and documents specified in the third party notice are required (para. 3(3)(e)) but is not entitled to be given a reasonable opportunity to make representations to HMRC, and is not entitled to insist that a summary of any representations which the taxpayer does make be given to the FTT. A number of those requirements can be disapplied by the FTT (viz. those in paras. 2(2), 3(3)(c)(d) and (e) and 4(1)) but no such disapplication was ordered in the present case.

Schedule 36 replaced the information powers of HMRC formerly in section 20 of the Taxes Management Act 1970 ("the TMA"). Under the TMA regime a third party notice could not be given except with the consent of a general or special commissioner. In R v Commissioners of Inland Revenue ex parte T C Coombs & Company [1991] 2 AC 283, Lord Lowry, with whom the other members of the Appellate Committee agreed, said (at 300C-F) that there was a strong presumption of regularity in relation to the function of the commissioner. He said that the commissioner was an independent person entrusted by Parliament with the duty of supervising the exercise of an intrusive power, and (quoting Earl of Derby v Bury Improvement Commissioners (1869) LR 4 Exch 222, 226) that, in the absence of any proof to the contrary, credit ought to be given to public officers, who have acted prima facie within the limits of their authority, for having done so with honesty and discretion. He said that, where the commissioner gave his consent, there was a presumption that he reasonably held the opinion that the tax inspector (giving the third party notice) was justified in proceeding under section 20, and that presumption could only be displaced by evidence showing that the inspector could not reasonably have held the opinion (required by section 20(3))...