SPC00580
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.1 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 14 December 2006

An Assistant Director, Special Civil Investigations, and [a member of the] Solicitor’s Office, for the Applicant

© CROWN COPYRIGHT 2007

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 financial institution No.1 (“the Financial Institution”).  The Notice seeks documents about customers with UK addresses who hold non-UK bank accounts with the Financial Institution. The Revenue were represented by an Assistant Director, Special Civil Investigations (“the Inspector”), and [a member] of their Solicitor’s Office.  
2.	In advance of this application I had a written brief from the Revenue consisting of 16 pages with numerous exhibits contained in a ring binder.  The Financial Institution’s solicitors (“the Solicitors”) also made written representations.  The Solicitors ask me to give a written decision, a procedure that has been adopted before, see another such application relating to a different financial institution reported Re an Application by Revenue and Customs Commissioners to Serve section 20 Notice (No 2) [2006] STC (SCD) 360, 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.”
Section 127 of the Finance Act 1988 provides:
“(1) Any provision made by or under the Taxes Acts which requires a person— 
 (a)    to produce, furnish or deliver any document or cause any document to be produced, furnished or delivered; or 
 (b)    to permit the Board, or an inspector or other officer of the Board— 
 (i)    to inspect any document, or 
 (ii)    to make or take extracts from or copies of or remove any document, 
shall have effect as if any reference in that provision to a document were a reference to anything in which information of any description is recorded and any reference to a copy of a document were a reference to anything onto which information recorded in the document has been copied, by whatever means and whether directly or indirectly. 
(2) In connection with tax, a person authorised by the Board to exercise the powers conferred by this subsection— 
 (a)    shall be entitled at any reasonable time to have access to, and inspect and check the operation of, any computer and any associated apparatus or material which is or has been in use in connection with any document to which this subsection applies; and 
 (b)    may require— 
 (i)    the person by whom or on whose behalf the computer is or has been so used, or 
 (ii)    any person having charge of, or otherwise concerned with the operation of, the computer, apparatus, or material, 
to afford him such reasonable assistance as he may require for the purposes of paragraph (a) above. 
 (3) Subsection (2) above applies to any document, within the meaning given by subsection (1) above, which a person is or may be required by or under any provision of the Taxes Acts— 
 (a)    to produce, furnish or deliver, or cause to be produced, furnished or delivered; or 
 (b)    to permit the Board, or an inspector or other officer of the Board, to inspect, make or take extracts from or copies of or remove. 
…
 (6) This section shall be construed as if it were contained in the Taxes Management Act 1970.”
Section 20D(3) of the Taxes Management Act 1970 provides:
“(3) Without prejudice to section 127 of the Finance Act 1988, in sections 20 to 20CC above “document” means, subject to sections 20(8C) and 20A(1A) [which relate to personal records and journalistic material], anything in which information of any description is recorded.”
4.	The following is a recital of the factual basis as I understand it:
(1)	The Financial Institution operates in a number of overseas jurisdictions .  It holds information on its computers in the UK relating to a number of individual customers with UK addresses and bank accounts in certain of those overseas jurisdictions.
(2)	The Revenue are currently investigating the use of offshore accounts by UK residents, which they consider presents a significant risk to the proper collection of UK tax.
(3)	The Revenue are aware from information obtained from a source (the identity of which was given to me) relating to debit cards of a number of  customers of the Financial Institution with offshore accounts of whom 22% have completed the foreign income pages in their tax returns. 
(4)	Out of the names identified by this source a sample, which is intended to be representative, has been chosen of 461 cases (not only customers of the Financial Institution) out of circa 11,000 taxpayers who have made self-assessment returns, are UK resident and domiciled, and have not declared any foreign income.  As part of a trial agreed with some of the accountancy bodies, letters based on one of four types of standard letter were sent to them in July 2005.  Of these 461 cases, 252 enquiries have been opened, and in 113 cases (of which 9 are being dealt with by Special Civil Investigations, which deals with larger cases) further tax liability has arisen or can be estimated.  Five further cases have been settled by a minor query approach.  This makes a total of 118 cases (26% of the total sample of 461) with an expected yield (references herein to yield include interest and penalties) of £1.9m (an average of £16,100 per case), and many payments on account have been made.  If granted, these Notices will also provide further information about transactions entered into by such people.  The remaining 204 cases in the sample have been cleared with no tax liability.
(5)	I was given full details of Special Civil Investigations and local tax office investigations of 10 cases relating to customers of the Financial Institution involving offshore accounts.  The total yield was £2,758,120, an average of £278,000 per case.  In all cases there was undeclared offshore bank interest and in 8 cases there was also undeclared trading profits.  The Inspector accepts that these are unrepresentative and the yield from them is not included in his estimate of the yield if consent to this Notice is granted.  However, they demonstrate the likely connection between undeclared foreign bank interest and other undeclared profits.  
5.	The Notice seeks documents containing the names and addresses of customers of the Financial Institution (other than public limited companies, Governments, charities, churches, mutuals, trade associations and clubs) having a UK address and a bank account in 3 specified overseas jurisdictions, together with documents containing the following information about the customer: both correspondence address and residential address, date of birth, indicator denoting returned mail, customer deceased indicator, sort code, account number, date account opened, date account closed, and certain other information maintained by the Financial Institution on behalf of its offshore banking business.   The Notice requires documents showing the annual interest credited since September 2001 and the balance on the last day of August 2002, July 2003, January 2004, March 2005 and the date the information is extracted.  Accounts with an average monthly balance of under £2,000 in each of the preceding 12 months are excluded.  Also excluded are accounts where the account holders have authorised the exchange of information for the purposes of the EU Savings Tax Directive or who are not subject to that Directive.  The Notice also requires documents showing details of credit card details where these are associated with certain specified jurisdictions including the total repayments and type of payments over the 24 months prior to extracting the information.  No production of paper documentation is required.
6.	The Inspector estimates that, if consent to this Notice is granted, of the estimated number withheld customers affected, 17% may be non-domiciled and only remittances will be relevant but nothing has been included in the estimate for these, leaving number withheld customers.  He estimates that 26% of the remaining cases (relating to number witheld customers) will give rise to an additional yield of number witheld per case, total £40m.  
7.	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 a number of meetings starting on 17 May 2006, and have corresponded with a view to excluding any inappropriate classes of customer and inappropriate or inaccessible documentation.  As a result of this dialogue, the Financial Institution has agreed the content of the Notice as capable of being complied with but without agreeing that it should be issued.  The requested time limit of  [number withheld] days for complying is agreed by the Revenue; and the Notice provides that if bona fide technical or other reasons arise which might prevent the Financial Institution from complying with the Notice the Inspector will engage in good faith discussions with a view to varying the terms of the Notice.  
8.  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 Inspector’s estimate of a yield of £40m, 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.
8.	Finally, I consider whether under section 20(7) I am satisfied that in all the circumstances the Inspector 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 raises serious questions that merit investigation and cannot be investigated by any other means.  Accordingly I consent to the issue of the Notice.

JOHN F. AVERY JONES
SPECIAL COMMISSIONER
RELEASE DATE: 9 January 2007

SC 2059/06