SPC00583

NOTICES UNDER TMA 1970 s.20 without naming the taxpayer – whether subs (8A) satisfied – yes – whether consent should be given to the Notices – 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.4 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 Notices under section 20(8A) of the Taxes Management Act 1970 on Financial Institution No.4 (“the Financial Institution”).  The Notices seek documents about customers with UK addresses with non-UK bank accounts with the Financial Institution. The Revenue were represented by an Assistant Director, Special Civil Investigations (“the Inspector”), and by  [a member of] their Solicitor’s Office.  
2.	In advance of this application I had a written brief from the Revenue consisting of 19 pages with numerous exhibits contained in two ring binders.  The Financial Institution’s solicitors (“the Solicitors”) also made written representations in the form of a 7 page submission, plus a letter of 13 December 2006 dealing with an additional point.  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 as Re an Application by Revenue and Customs Commissioners to Serve section 20 Notice (No 2) [2006] STC (SCD) 360 (“the previous case”), 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 countries.  It holds information on its computers in the UK on an estimated [number withheld] customers with UK addresses and non-UK bank accounts.
(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  23% 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 closed 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, £3,849,500 an average of £384,950 per case.  In all cases there was undeclared offshore bank interest and 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 these Notices is granted.  However, they demonstrate the likely connection between undeclared foreign bank interest and other undeclared profits.  
5.	The Notices seek 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 non-UK bank account in certain named jurisdictions, including documents containing the following information: the name of the account holder, the UK address of the account holder, the date of birth of the account holder, the date the bank account was opened, the date the bank account was closed.  The Notices require documents showing the balance on 30 September in each of the years 2000 to 2005.  Where the information about an account has been authorised to be exchanged under the EU savings directive the account is excluded.  A separate Notice requires similar information relating to UK processed credit or charge cards including documents containing information about all financial transactions in September in each of the years 2001 to 2005.  
6.	The Inspector estimates that if consent to these Notices 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 cases (relating to [number withheld] customers) will give rise to an additional yield of £150m.  
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 26 September 2005, and have corresponded.  As a result of this dialogue the Financial Institution has agreed the form of the Notices, but without agreeing that they should be issued. 
Evidence
8.	The Solicitors point out that the financial institution in the previous case was allowed the opportunity of seeing and commenting on the Revenue’s information about its customers and seeks a similar opportunity.
9.	The reason why the opportunity for the financial institution to comment on the evidence arose in the previous case was because an application for a s 20 notice relating to credit cards was made earlier than the one relating to bank accounts since for some reason a revised precursor letter was sent in relation to the latter.  The statute requires the Revenue to satisfy a Special Commissioner and it seems reasonable for them to give the evidence to me, particularly as some of the evidence is that of actual investigation cases relating to the Financial Institution’s customers which they could not disclose to the Financial Institution.
Class
10.	The second main objection raised by the Solicitors is that the Notices do not relate to a proper class of taxpayers. They say that this is a case (quoting my decision in the previous case) where the Revenue are saying “Can we have a section 20 Notice against the Financial Institution because those with UK addresses and non-UK bank accounts form so large a class that we are bound to find some tax defaulters.”  The Solicitors contend that there must be a realistic linking factor between the nature of the class and tax, and the likely loss of tax, as in the case of taxpayers who had entered into a commercially marketed tax avoidance scheme, which they suggest is none.  They contend that the Inspector had to do more than demonstrate a generalised suspicion that people in the UK who have bank accounts abroad must be engaged in tax avoidance (or worse).
11.	I entirely agree with this last point.  If I thought that the Revenue were on a fishing expedition based on the likelihood of any large class containing members who had not complied with their tax obligations I would have no hesitation in refusing consent to the Notices.  But the application before me is very different.  The Revenue have quite a lot of information about persons with UK addresses and offshore bank accounts derived from their sample of credit and debit card cases described above showing that only 23% of such customers of the Financial Institution completed the foreign income pages of their tax returns.  From the representative sample of the card cases, which include some customers of the Financial Institution, the Inspector concludes that 26% of the taxpayers affected by the Notices will yield tax totalling £150m.  Since I assume that most accounts have a credit or debit card associated with them these figures are likely to be representative of the present case.  The Revenue also have the admittedly unrepresentative sample of customers of the Financial Institution where in 10 cases all involving offshore bank accounts the average yield was £384,950 per case.  I have reviewed the Inspector’s estimates and regard them as the best estimates that can be made at present of the likely result of the issue of the Notices.  I consider that taxpayers with UK addresses having bank accounts in certain named jurisdictions form a proper class of taxpayers, notwithstanding that it may contain a few who are not in fact taxpayers, because those with UK addresses are likely to be UK taxpayers.  There is no other way of eliminating those who are not UK taxpayers at this stage, particularly as some of them may be people who are not, but should be, taxpayers.
Possession or power
12.	The Solicitors have provided me with submissions about the meaning of possession or power.  These stop short of saying that the Financial Institution does not have possession or power of the requested documents.
13.	The Financial Institution was first contacted by the Revenue in relation to a possible Notice on 2 September 2005 and the first meeting was on 26 September 2005.  Since then the Solicitors refer to the Financial Institution having engaged in a long process of good faith discussions during with the Inspector tells me that there has been no suggestion that any of the requested documents were not in the Financial Institution’s possession or power.  There is nothing in the nature of the documents that would suggest that they are not.  Accordingly, I do not see anything in this submission that would lead me not to consent to the Notice.  In any case, if it transpires that something is not in the Financial Institution’s possess or power that is a complete answer to its not being delivered.
Information or documents
14.	The Solicitors also contend that the Notices are a request for information rather than documents.  
15.	While the Solicitors are clearly right in saying that a s 20(3) (and accordingly a subs (8A)) Notice must be in respect of documents, “document” for this purpose is defined to mean anything in which information of any description is recorded.  In practice we are dealing with information stored on a computer hard disc; indeed the Notices provide that only documents held in electronic format are to be provided.  In these circumstances the distinction between documents and information is much less clear-cut than with paper documents.  It seems to me that the Notices properly ask for documents containing certain listed information.  It may be that the Financial Institution will find it more convenient to extract this information from a larger document (computer files on the hard disc) rather than provide a document or documents containing the information.  While one might regard the former as providing information rather than a document it does not alter the fact that the Notices require a document and this is merely that this is a more convenient way of providing a document.
16.	In relation to the Notice requiring credit or charge card documents the Solicitors contend in addition that a request for specified information regarding all financial transactions occurring within specified months constitutes a request for particulars or information rather than documents.  They point out that the management and custody of all relevant credit card statements has been outsourced to a third party supplier.  This would mean that the Financial Institution will need to discuss whether the third party has the technical ability and resources to produce the statement within the time limit in the Notice, and will have to pay the third party for the work.
17.	On the first point, the requested document is the same document as the customer received in respect of that month’s card transactions.  It seems to me that the information must exist as a document and so this is a request for a document rather than information.  So far as the third party is concerned since the Financial Institution has contracted with the third party for management and custody of the statements I think it reasonable to assume that the Financial Institution has a right to obtain this information.  On the time limit all I have is the Solicitors’ statement that this will need to be discussed with the third party.  They do not contend that 90 days is impossible.  My own view is that it seems unlikely that the third party cannot provide such information within 90 days.  If there are reasons why the third party cannot provide the documents within this time limit, the Notice contains an offer by the Inspector to engage in good faith discussions to extend the period.  In the circumstances I do not consider that objection is a reason for me not to consent to the Notice.  So far as additional cost is concerned this is a consequence of outsourcing the work.  The Financial Institution might have to do the work itself in which case this is also a factor to take into account in deciding whether consent to the Notice should be given.
Time for compliance
18.	The Solicitors say that the Financial Institution believes that it will require 120 days to comply with the Notices but they have indicated that they will attempt to comply within 90 days.  This is because they will need to create bespoke software and test it.  The Inspector has agreed in the Notices to engage in good faith discussions if the 90 day limit proves onerous or impossible.  The Financial Institution agreed the 90 day limit with the Revenue on 8 December 2006 on this basis and the Solicitors are, it seems, content with this.  I consider that in the light of these considerations I should allow the 90 day limit to stand.
Conclusion
19.	I do not consider that any of these objections should prevent the issue of the Notices.   In the light of the above I am satisfied first, that the Notices relate 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 Notices relate 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 £150m, 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 Notices relate is not readily available from another source (and in particular most of the information required by the Notices is not known even for those whose identities are known to the Revenue).  Accordingly, section 20(8A) is satisfied.
20.	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 Notices.
21.	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.

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

SC 2061/06