[2009]UKFTT 68 (TC)

TC00009

NOTICE UNDER TMA 1970 s.20 without naming the taxpayer – whether subs (8A) satisfied – yes – whether consent should be given to the Notice – yes

THE SPECIAL COMMISSIONERS

	APPLICATION BY THE COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS TO SERVE A SECTION 20 NOTICE ON FINANCIAL INSTITUTION NO 5 IN RESPECT OF CUSTOMERS WITH UK ADDRESSES HOLDING NON-UK ACCOUNTS

Special Commissioner:	DR JOHN F AVERY JONES CBE

Sitting in private in London on 26 March 2009

Stephen Rimmer of HM Revenue and Customs Enforcement and Compliance, and Dennis Dixon of the Solicitor’s Office, HM Revenue and Customs, for the Applicants

© CROWN COPYRIGHT 2009

ANONYMISED DECISION

1.	This is an ex-parte application by the Commissioners for HM Revenue and Customs for consent to serve a Notice under section 20(8A) of the Taxes Management Act 1970 on a Financial Institution (“the Financial Institution”).  The Notice seeks documents about customers with UK addresses with non-UK bank accounts with the Financial Institution. The Revenue were represented by Mr Stephen Rimmer of HM Revenue and Customs Enforcement and Compliance (“the Officer”), and Mr Dennis Dixon of their Solicitor’s Office.  
2.	In advance of this application I had a written brief from the Revenue consisting of 27 pages with numerous exhibits contained in a ring binder.  The Financial Institution’s Solicitors (“the Solicitors”) also made written representations in the form of an 9 page submission.  They ask me to give a written decision, a procedure that has been adopted before, which I agreed to do in this case.
3.	Relevant parts of section 20 of the Taxes Management Act 1970 are:
“…(3) Subject to this section, an inspector may, for the purpose of enquiring into the tax liability of any person (“the taxpayer”), by notice in writing require any other person to deliver to the inspector or, if the person to whom the notice is given so elects, to make available for inspection by a named officer of the Board, such documents as are in his possession or power and as (in the inspector’s reasonable opinion) contain, or may contain, information relevant to any tax liability to which the taxpayer is or may be, or may have been, subject, or to the amount of any such liability; and the persons who may be required to deliver or make available a document under this subsection include the Director of Savings. 
…
 (6) The persons who may be treated as “the taxpayer” for the purposes of this section include a company which has ceased to exist and an individual who has died; ... 
 (7) Notices under subsection (1) or (3) above are not to be given by an inspector unless he is authorised by the Board for its purposes; and— 
(a)   a notice is not to be given by him except with the consent of a General or Special Commissioner; and 
 (b)   the Commissioner is to give his consent only on being satisfied that in all the circumstances the inspector is justified in proceeding under this section. 
(8) Subject to subsection (8A) below, a notice under subsection (3) above shall name the taxpayer with whose liability the inspector (or, where section 20B(3) below applies, the Board) is concerned. 
(8A) If, on an application made by an inspector and authorised by order of the Board, a Special Commissioner gives his consent, the inspector may give such a notice as is mentioned in subsection (3) above but without naming the taxpayer to whom the notice relates; but such a consent shall not be given unless the Special Commissioner is satisfied— 
 (a)   that the notice relates to a taxpayer whose identity is not known to the inspector or to a class of taxpayers whose individual identities are not so known; 
 (b)   that there are reasonable grounds for believing that the taxpayer or any of the class of taxpayers to whom the notice relates may have failed or may fail to comply with any provision of the Taxes Acts; 
 (c)   that any such failure is likely to have led or to lead to serious prejudice to the proper assessment or collection of tax; and 
 (d)   that the information which is likely to be contained in the documents to which the notice relates is not readily available from another source. 
 (8B) A person to whom there is given a notice under subsection (8A) above may, by notice in writing given to the inspector within thirty days after the date of the notice under that subsection, object to that notice on the ground that it would be onerous for him to comply with it; and if the matter is not resolved by agreement, it shall be referred to the Special Commissioners, who may confirm, vary or cancel that notice.”
4.	The following is a recital of the factual basis as I understand it:
(1)	The Financial Institution has a branch in an EU member state.  It holds information on its computers in the UK on an estimated 700 individual customers with UK addresses and non-UK bank accounts.  This figure for later periods has reduced to 400 following the introduction of withholding tax under the European Union Savings Tax Directive (“EUSTD”).
(2)	The Revenue are currently investigating the use of offshore accounts by UK residents, in the course of which an offshore disclosure facility took place during 2007.  Although not in connection with a s 20 Notice to this Financial Institution a number of people with accounts of an associated company of this Financial Institution made disclosures in which the tax loss was an average per case of £189,320.    
(3)	Of the persons with foreign bank accounts for which the Revenue have previously obtained information from other financial institutions the number making notifications under the offshore disclosure facility or otherwise being investigated that resulted or are expected to result in a tax loss was 25.24% of cases. This percentage excludes accounts of those for which the Revenue have no information about the person and cases where they know about the person but no overseas income has been disclosed and who have not taken part in the disclosure.  It is therefore likely to be the minimum percentage.
(4)	Because the Financial Institution’s clients are larger than those of other institutions from which the 25.24% figure was derived and are also likely to have a significant number of non-domiciled customers, the Revenue have used a 5% figure in estimating the tax loss.  This works out at £5.2m using the offshore disclosure facility average figure of £189,320 per case (the 5% representing an average number of accounts in each year of 27.5), or £41.25m using a figure put forward by the Revenue for an average yearly tax loss of £250,000.  The Officer estimates that the yield is likely to be between these two figures if the Notice is issued.
5.	I emphasise that no allegation is made against the Financial Institution. Prior to the issue of the precursor letter the Financial Institution and the Revenue have had five meetings and three telephone conferences starting on 19 May 2008.  As a result of this dialogue the Financial Institution, in recognition of the wide powers of the Revenue, has (subject to the representations made by the Solicitors) agreed the form of the Notice, but without agreeing that it should be issued. 
6.	The Solicitors make the point that the Revenue hold no information suggesting non-compliance by customers of the Financial Institution.  In particular, the information from which the figure of £189,320 per case was derived is not typical and does not relate to accounts in the power or possession of the Financial Institution and in some cases are more than 6 years old.  The Revenue reply that there is no reason to suppose that customers of the Financial Institution are more likely to comply with their tax obligations than customers of the associated company.  The information obtained from the offshore disclosure facility while not directed to customers of this Financial Institution makes it statistically likely that there is a significant degree of non-compliance among their customers.
7.	I consider that in the light of the significant evidence of non-compliance generally I should draw the inference that customers of the Financial Institution are unlikely to be different.  Customers of institutions having small numbers of wealthy customers are less likely to have come to the attention of the Revenue through other routes.  The factual differences that we are dealing here with wealthier individuals and a branch in an EU member state rather than a tax haven seem to me to have been taken into account by revising the 25% of cases leading to a tax loss down to 5%.  
8.	The solicitors next contend that there is no evidence of serious prejudice to the collection of tax.  The fact that under the EUSTD the EU member state of the branch applies retention tax cannot be taken as evidence of evasion.  The Revenue say that they are not suggesting that it does.  But nor is there evidence that a taxpayer who is subject to retention tax is more or less likely to be compliant than a taxpayer who is not.  They have applied a consistent basis for estimating tax loss.  Here tax loss could arise from dividends or capital gains as well as interest and so the EUSTD figures cannot be a definitive guide.
9.	I agree with the Revenue that conclusions cannot be drawn from the retention statistics and that it is preferable to rely on their estimates based on evidence obtained in other cases.
10.	The solicitors contend that non-domiciled clients should be excluded, and so should ISA accounts.  The Revenue have amended the Notice to exclude the latter.  As to non-domiciled clients they do not accept that such clients re of no interest to the Revenue.  Nor would their exclusion be possible without the Revenue breaching the confidentiality of the non-domiciled customers in agreeing with the Financial Institution the names that could be excluded from a Notice.
11.	It seems to me that the Revenue have a legitimate interest in obtaining information about non-domiciled clients event though some of them may not be remitting foreign income.
12.	The Solicitors next contend that only names and addresses of customers should be provided leaving it to the Revenue to obtain further information from the customers.
13.	Having already consented to a number of similar notices requiring more information than names and addresses of customers I see no merit in this point.
14.	The Solicitors next ask that the Revenue provide details of their procedures to ensure the security of the documents provided.  This is not a point for me as the law provides for confidentiality of such information.
Conclusion
15.	I do not consider that any of these representations should prevent the issue of the Notice.   I have considered the meaning of the words of subs (8A) in a number of earlier applications (Re an Application by Revenue and Customs Commissioners to Serve section 20 Notice [2006] STC (SCD) 360, [2007] STC (SCD) 202, 208, 216, and 222) and as no point has been made by the Financial Institution apart from those dealt with above, I shall adopt that analysis.  
16.	In the light of the above I am satisfied first, that the Notice relates to a class of taxpayers whose individual identities are not known.  Secondly, in the light of the figures, that there are reasonable grounds for believing that any of the class of taxpayers to whom the Notice relates may have failed (or may fail) to comply with any provision of the Taxes Acts.  Thirdly, that in the light of these figures and the Officer’s estimate of a yield of between £5.2m and £41.25m, any such failure is likely to have led (or to lead) to serious prejudice to the proper assessment or collection of tax.  And fourthly, that the information which is likely to be contained in the documents to which the Notice relates is not readily available from another source (and in particular most of the information required by the Notice is not known even for those whose identities are known to the Revenue).  Accordingly, section 20(8A) is satisfied.
17.	Finally, I consider whether under section 20(7) I am satisfied that in all the circumstances the Officer is justified in proceeding under section 20.  In doing so I must weigh up the burden imposed on the Financial Institution with the benefit to the Revenue.  In my view the information that the Revenue has already obtained through the Offshore Disclosure Facility and its enquiries of other financial institutions (see paragraph 4(3) above) raises serious questions that merit investigation and cannot be investigated by any other means.  Accordingly I consent to the issue of the Notice.
18.	I have written these reasons for my decision in the expectation that the Revenue will send it to the Financial Institution and their advisers and if it is necessary I authorise them to do so.  If there is anything in this decision that the Revenue do not want to disclose to the Financial Institution I authorise them to apply to me for it deletion before it is sent to the Financial Institution.  If either the Revenue or the Financial Institution have suggestions for anonymisation I shall take these into account before authorising publication.

JOHN F. AVERY JONES

SPECIAL COMMISSIONER
RELEASE DATE: 30 March 2009

SC 206/09