R v Commissioners of Inland Revenue, ex parte Banque Internationale a Luxembourg SA
| Jurisdiction | England & Wales |
| Judgment Date | 23 June 2000 |
| Date | 23 June 2000 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Lightman J.
Gerard Clarke (instructed by Norton Rose) for the bank.
Ingrid Simler (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Chappell v United Kingdom HRC(1989) 12 EHRR 1
Funke v France HRC(1993) 16 EHRR 297
Panayiotou v Sony Music Entertainment (UK) Ltd ELR[1994] Ch 142
R v IR Commrs, ex parte Archon Shipping Corp TAX[1998] BTC 405
R v IR Commrs, ex parte TC Coombs & Co TAXELR[1991] BTC 89; [1991] 2 AC 283
R v IR Commrs, ex parte Ulster Bank TAX[1997] BTC 314
R v Secretary of State for the Home Department ex parte Fininvest SpA UNK[1997] 1 All ER 942
R v IR Commrs, ex parte Taylor (No. 2) TAX[1990] BTC 281
Judicial review - Power to call for documents - Notice to bank to produce documents relating to clients' tax affairs - Bank claimed duty of confidentiality to clients who refused consent to production of documents - Bank willing to co-operate but challenged validity of notice in view of clients' stance - Whether clients' confidentiality relevant to decision to issue notices - Whether scope of the notices was too wide - Whether documents demanded related to the conduct of a pending appeal - Whether compliance unduly burdensome on bank - Whether notices were for improper purpose or were irrelevant or were irrational - Whether applicant established irregularity in obtaining consent by general commissioner or authority given by Board to issue notices - Taxes Management Act 1970, Taxes Management Act 1970 section 20 subsec-or-para (3)s. 20(3); Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 767Cs. 767C.
This was an application by Banque Internationale a Luxembourg SA ("the bank") seeking an order of certiorari quashing the decision of the Revenue to issue and serve on it notices requiring production of documents under the Taxes Management Act 1970, Taxes Management Act 1970 section 20 subsec-or-para (3)s. 20(3), having obtained the consent of a general commissioner, and under the Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 767Cs. 767C, authorised by an inspector acting under authorisation by the Board of Inland Revenue.
The Revenue, in the course of investigating large scale corporate tax avoidance schemes, issued notices to the bank requiring the production of documents. The bank was willing to co-operate but owed a duty of confidentiality to the taxpayers as their bankers. The taxpayers being investigated refused to consent to the bank furnishing the documents requested, and, in view of the stance adopted by the taxpayers, challenged the validity of the notices.
The avoidance schemes involved claims for relief by a number of UK leasing companies consequent on making contributions to employee share ownership trusts ("ESOTs") set up by consultant companies operated by an individual ("S") and his wife resident in Monaco. The finance and banking facilities were provided by the bank. The schemes involved UK resident parent companies selling the leasing companies to an Irish group ("Fedelm") resident in Monaco. The leasing companies sought to take advantage of front-loading of leasing contracts under the Capital Allowances Act 1990, Capital Allowances Act 1990 section 24s. 24 and 39-50.
The Revenue suspected that the purported payments into the ESOTs were not genuinely made, or indeed made at all, and therefore did not qualify for relief. In that connection, the Revenue sought documents from the bank, having failed to obtain information which they required either from S or the companies concerned.
The bank contended that the notices were too widely drawn. The words "specified or described" in both the notices under Taxes Management Act 1970 section 20 subsec-or-para (3)s. 20(3) and under Income and Corporation Taxes Act 1988 section 767s. 767 were to be interpreted in the same way as they had been interpreted in the context of RSC, O. 24, r. 7 dealing with specific discovery of documents, i.e. limiting the documents to be produced to identified documents rather than classes of documents. Moreover, the notices impinged on the requirement of confidentiality enshrined in the European Convention on Human Rights, and compliance would impose an unreasonable burden on the bank.
It was further contended that the notices were invalid because some of the documents described were documents relating to a pending appeal, which, under Taxes Management Act 1970 section 20B subsec-or-para (2)s. 20B(2), the bank was not obliged to deliver.
It was said that the Income and Corporation Taxes Act 1988 section 767s. 767 notices were issued for an improper purpose. They purported to be in connection with investigation into the affairs of Yamaichi Bank, but were in reality to further the investigation into the Fedelm investigation. The same purpose could have been achieved by proceeding under Taxes Management Act 1970 section 20 subsec-or-para (3)s. 20(3) rather than under s. 767 which lacked the protection afforded by the requirement of consent by an independent commissioner.
Held, dismissing the application for judicial review:
1. The breadth of the notices had to be considered in the context of the investigation in question and these requests were sufficiently justified. The words "specified or described" in both Taxes Management Act 1970 section 20s. 20 and Income and Corporation Taxes Act 1988 section 767s. 767 were to be given their full normal meaning. "Described" had a broader meaning than "specified" so that the term was not, in the context of Taxes Management Act 1970 section 20s. 20 or Income and Corporation Taxes Act 1988 section 767s. 767 limited to particular documents as in the context of RSC, O. 24, r. 7 dealing with specific discovery. The term indicated classes or categories of documents as opposed to a single document (decision of the majority of the Court of Appeal in R v IR Commrs, ex parte Ulster Bank LtdTAX[1997] BTC 314) followed.
2. Even if the notices impinged on the confidentiality enshrined in the European Convention on Human Rights, there was no basis for any suggestion that the inspector and the commissioner did not take those considerations into account in exercising the discretionary power to serve the notices.
3. The exception for documents relating to the conduct of an appeal was limited to documents created for the purpose of the appeal in question and did not extend to documents to be used as evidence at the appeal.
4. Mere proof that compliance would impose a substantial burden on the bank did not advance its case. The bank could have made representations to that effect to the inspector and the commissioner before the notices were served, but it did not do so. The question of the burdensome character of the notices was a matter for the inspector and the commissioner which they must have appreciated. There was no basis for holding that their decision to proceed notwithstanding the burden was irrational or improper.
5. Allegations by the bank that the true purpose of theIncome and Corporation Taxes Act 1988 section 767s. 767 notices was not directed at Yamaichi Bank as stated, but to further the investigation into Fedelm were not accepted. Nor could the bank show that the documents sought were irrelevant or that the Revenue's demands were irrational. It was not realistic to suggest that the documents sought could have been obtained directly from S or the leasing companies all of whom had objected to production. An objection by the bank on grounds that the same purpose could have been served by proceeding under Taxes Management Act 1970 section 20s. 20 with its attendant safeguards also failed. It was well established that the existence of the Taxes Management Act 1970 section 20s. 20 regime did not militate against the use of alternative provisions specifically drafted for the purpose of obtaining documents under another regime: (R v IR Commrs, ex parte TaylorTAX(No. 2) [1990] BTC 281) applied.
Lightman J: Introduction
1. In these proceedings (pursuant to permission), Banque Internationale a Luxembourg SA ("BIL") seeks orders of certiorari quashing decisions of the Revenue issue and serve on BIL on the 7 April 1999 five notices ("the s. 20 notices") under Taxes Management Act 1970 section 20s. 20(3) of the Taxes Management Act 1970 ("s. 20") and on the 22 June 1999 three notices ("the s. 767 notices") underIncome and Corporation Taxes Act 1988 section 767s. 767 of the Income and Corporation Taxes Act 1988 ("s. 767").
2. The Revenue are investigating large scale corporate tax avoidance schemes under which tax relief companies make contributions to an employee share ownership trust ("ESOT") set up and operated by Abbey Consultants SA ("Abbey") and Farndale Consultants Ltd ("Farndale") of which the beneficiaries are Mr David Sinclair ("Mr Sinclair") and his wife. The finance and banking facilities for the schemes are provided by BIL. Over a £150m of tax is at stake. In furtherance of these investigations the Revenue have issued the notices requiring specific classes of documents from BIL in relation to named taxpayers. BIL is willing to co-operate with the Revenue, but owes duties of confidentiality as their banker to the taxpayers. The taxpayers however refuse their consent to BIL furnishing the documents requested, and in view of the stance adopted by the taxpayers and at their instance BIL challenges the validity of the notices.
3. The history of the investigation is set out in the affidavit of Mr Nicholas Miller ("Mr Miller") of the Special Compliance Office ("the SCO") and one of HM Inspectors of Taxes. The Revenue's Special Investigations Section ("the SIS") is a department responsible for monitoring and acting against corporate tax avoidance schemes, which often involve a high degree of technicality...
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