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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Application - customers with UK addresses holding non-UK accounts [2009] UKFTT 195 (TC) (17 June 2009) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00148.html Cite as: [2009] UKFTT 195 (TC)

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[2009 UKFTT 195 (TC)

TC00148

Appeal number TC/2009/10089

NOTICE UNDER para 5 Sch 36 FA 2008 without naming the taxpayer – whether conditions satisfied – yes – whether approval should be given to the Notice – yes

FIRST-TIER TRIBUNAL

TAX CHAMBER

APPLICATION BY THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS TO SERVE A NOTICE UNDER PARA 5 OF SCH 36 TO THE FINANCE ACT 2008 ON FINANCIAL INSTITUTION NO 9 IN RESPECT OF CUSTOMERS WITH UK ADDRESSES HOLDING NON-UK ACCOUNTS

TRIBUNAL: TRIBUNAL JUDGE JOHN AVERY JONES CBE

Sitting in private in London on 15 June 2009

Stephen Rimmer of HM Revenue and Customs Enforcement and Compliance and Dennis Dixon of their Solicitor's Office for the Applicant

© 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 paragraph 5 of Schedule 36 to the Finance Act 2008 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. HMRC 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 HMRC consisting of 13 pages of general information plus a further 12 pages with information specific to the Financial institution with exhibits contained in a ring binder. The Financial Institution also made written representations in the form of a 17 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. Paragraph 5 of Schedule 36 to the Finance Act 2008 reads:

"5—(1) An authorised 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 condition in sub-paragraph (2) is met.

(2) That condition is that the information or document is reasonably required by the officer for the purpose of checking the UK tax position of—

(a)     a person whose identity is not known to the officer, or

(b)     a class of persons whose individual identities are not known to the officer.

(3) An officer of Revenue and Customs may not give a notice under this paragraph without the approval of the tribunal.

(4) The tribunal may not give its approval for the purpose of this paragraph unless it is satisfied that—

(a)     the notice would meet the condition in sub-paragraph (2),

(b)     there are reasonable grounds for believing that the person or any of the class of persons to whom the notice relates may have failed or may fail to comply with any provision of the Taxes Acts, VATA 1994 or any other enactment relating to value added tax charged in accordance with that Act,

(c)     any such failure is likely to have led or to lead to serious prejudice to the assessment or collection of UK tax, and

(d)     the information or document to which the notice relates is not readily available from another source.

(5) In this paragraph "UK tax" means any tax other than relevant foreign tax and value added tax charged in accordance with the law of another member State."

4. The following is a recital of the factual basis as I understand it:

(1) The Financial Institution has associated companies in the Channel Islands. Both it and the Channel Islands companies are controlled by a non-UK parent company. Client relationship managers of the Financial Institution in the UK have access to 80 (according to information given earlier to HMRC, but according to the representations by the Financial Institution's advisers the figure seems to be 89) customers' offshore accounts in the Channel Islands with a total amount on deposit of £23m.

(2) HMRC 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 Notice to this Financial Institution a number of people with accounts in this Financial Institution's group made disclosures in which the tax loss was an average per case of £30,329. 73% of these cases related to accounts in the Channel Islands.

(3) Of the persons with foreign bank accounts for which HMRC 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 20% of cases (this is a correction to the 25.24% of cases which was the figure given in previous applications relating to other financial institutions). This percentage excludes accounts of those for which HMRC 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. Alternatively since private banking customers are included in the Notice the Officer puts forward the figure of 5% (which has been used in previous cases involving private banking) rather than 20%. However, these cases are likely to be larger than the average but the Officer could not give figures to estimate the amount.

(4) Applying the 20% and the average tax loss to 80 customers gives a potential tax loss for customers of the Financial Institution of about £485,000. On the 5% basis the potential tax loss would be about £121,000, but this does not take into account the likelihood that private banking cases will be larger than the average. On the basis of 89 customers these figures become £539,856 and £134,000.

(5) An independent accountants' report obtained by the Financial Institution showed that of the 89 customers identified 14 had opted for a retention of tax under the EU Savings Tax directive as applicable in the Channel Islands. The remaining 75 had a current total balance of about £23m. A sample of 16 of the 75 (amounting to 97% of the total balance of the 75) was investigated. All of the 16 were assumed to be non-domiciled on the basis of their foreign nationality. Of these 13 had made no remittances to the UK in the previous two years although in four cases there was mixed capital and income.

5. I emphasise that no allegation is made against the Financial Institution. The Financial Institution and HMRC have had eight meetings or telephone conferences starting on 6 June 2008. As a result of this dialogue the Financial Institution has agreed the form of the Notice, but without agreeing that it should be issued.
6. The Financial Institution's first representation is that on the figures there is no serious prejudice to the assessment or collection of tax. HMRC contend that the independent accountants could not have access to all of the information available. The 16 may in fact be domiciled, but even if they are non-domiciled the source of the funds are as much of interest to HMRC as the interest, seven out of 16 cases have mixed capital and income and there may have been remittances outside the period investigated. While the accountants have shown that the figures are relatively small, I consider must take into account that there has been a tax loss of over £30,000 per case in the cases of customers of the Financial Institution known so far to HMRC and there is an amount of £23m in the 89 accounts with which I am concerned. I do not think that what is serious prejudice is limited to absolute figures. If, as is the average, 20% of the 89 cases have not declared income for tax that they should have done I consider that this amounts to serious prejudice to the assessment or collection of tax. The Financial Institution's argument would lead to the conclusion that so long as taxpayers chose to use a large number of small financial institutions rather than one large one there was no such prejudice. We are dealing on average with 20% being defaulters, which is a high proportion. It may be that 5% is a better figure in the circumstances of private banking but because I have no information on which to judge whether the average figure should be higher for private banking customers. I prefer therefore to rely on the 20% and the average tax loss figure so far obtained for the Financial Institution's customers.
7. The Financial Institutions second representation is that it cannot know whether the accounts excluded from the Notice on the basis of the Channel Islands equivalent of the EU Savings Directive have been reported because only the Channel Islands company knows this and cannot disclose this to the Financial Institution because of local banking confidentiality laws. Alternatively it will be onerous to identify those who have reported. HMRC doubt the applicability of Channel Islands banking secrecy laws if the result of providing information is that the information will not be disclosed to HMRC. HMRC also say that if the requirement is unduly onerous that is a matter that can be appealed. My view is that this is a variation of the argument that the class will include people whose identities are already known to HMRC and so the Notice is bad in not excluding them (which HMRC cannot do without breaching their duty of confidentiality). As explained in Re an Application by Revenue and Customs Commissioners to Serve a section 20 Notice (No.2) [2006] STC (SCD 360 at [22] and repeated in several other decisions, the law requires that there are reasonable grounds for believing that any of the class may have failed (or may fail) to comply with the Taxes Acts. This cannot be rewritten to mean all of the class have so failed.
8. Their next representation is that the Notice should stop at 5 April 2008 rather than 31 March 2009 because tax returns are not yet due for the later period. HMRC reply that the legislation specifically includes the possibility that taxpayers may fail to comply with the Taxes Act. I agree with HMRC.
9. The Financial Institution further contends that the Notice is unduly onerous and will take six to eight weeks of internal manpower. HMRC reply that they do not have enough information to give a view. It stretches my credulity that getting information about the accounts of 89 customers could take 6 to 8 weeks of manpower. But if I am wrong there is an appeal route open to it.
10. I do not consider that any of these representations should prevent the issue of the Notice. In the light of the above I am satisfied first, that the documents are reasonably required by the Officer for the purpose of checking the UK tax position of a class of taxpayers whose individual identities are not known to the Officer. 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, for the reasons given above, 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 HMRC). Accordingly, paragraph 5 is satisfied and I approve the giving of the Notice.

JOHN AVERY JONES

TRIBUNAL JUDGE

RELEASE DATE: 17 June 2009