HM Revenue & Customs uses Tax Information Exchange Agreements (TIEA) in the course of ongoing enquiries when they want to obtain information from jurisdictions outside of the UK.
But the UK taxman doesn’t always play fair when pursuing a TIEA, writes Jeff Millington, private client tax director at law firm Withers.
TIEAs enables HMRC to enforce domestic tax laws overseas in relation to income tax, corporation tax, inheritance tax, capital gains tax and VAT.
The UK government currently has 23 such arrangements, including with well-known jurisdictions such as Guernsey, Jersey, Isle of Man, the British Virgin Islands, Bermuda, Bahamas and Gibraltar and as far afield as Liechtenstein, San Marino and Liberia.
Verifying requests
There are, however, requirements imposed on a requesting party, including article 5 paragraph 1, which is an important section stating the following:
“The requesting party shall only make a request for information pursuant to this article when it is unable to obtain the requested information by other means, except where such recourse to such means would give a disproportionate difficulty.”
The requesting party has to identify the person under investigation, the period for which the information is requested, the purpose for the request and why HMRC believes the grounds for requesting the information are valid.
HMRC should also provide a statement that it has pursued all means available to obtain the information in the UK.
Information can be requested from institutions such as banks, financial institutions and any individuals including nominees and trustees acting in an agency or fiduciary capacity. Information requested can be extensive to include, in respect of trusts, information on settlors, beneficiaries, protectors and trustees.
For foundations, details about founders, beneficiaries and members of the foundation council can be requested.
Article 6 of the agreement allows officers from HMRC to undertake examinations of records and interviews in the corresponding jurisdiction.
The individual under investigation is informed that a request has been received by the jurisdiction which receives it. That individual has no right of appeal and neither does the fiduciary who is asked to provide the information.
They could apply for a judicial review, but they still have to obtain the information.
Reviewing a TIEA
Over the past two years Millington has seen three TIEA requests to jurisdictions involving clients and none have complied with the fundamental point above that HMRC has exhausted all of its information gathering powers.
In the first case there appeared a deliberate attempt to circumvent the UK Tribunal system.
A client was under investigation for having, in our opinion, a compliant structure outside of the UK.
He had been co-operating with HMRC and had provided information. The sticking point was providing the names of the companies the offshore structure dealt with.
These were all multi-national companies, none of which were based in the UK. The client did not want to give the names, as the work undertaken with these companies was commercially very sensitive and he did not want them to know that his structure was under enquiry.
We believed that the effect on his ability to continue to work in this field would be disproportionate to the value of the information HMRC was likely to receive.
We had pointed out that the information they sought was old and that all of the communication could be provided by our client through the fiduciary company in the overseas jurisdiction which managed and administered the structure and had entered into the contracts with the multi-nationals.
HMRC had issued a Schedule 36 Notice to our client requesting the information and the names of the companies concerned.
We agreed to provide all of the information, but redacted, and appealed against the request for the names of the companies on the basis it was a breach of our client’s Human Rights under Article 6 of the HRA.
Acting prematurely
We were expecting a hearing at the Tribunal, but to our dismay and surprise HMRC issued a TIEA to the jurisdiction concerned to provide the information and the names of the companies they had entered into the contracts with.
We immediately wrote to that jurisdiction and pointed out that HMRC had not exhausted all of its information gathering powers and should not have issued the TIEA.
We also pointed out that, in our opinion, HMRC were purposefully trying to breach our client’s Human Rights and circumvent the correct procedure in the UK. HMRC withdrew the request and the information was provided, but redacted.
This is an example of HMRC deliberately ignoring its own protocol concerning a TIEA to obtain information where they had been advised that obtaining it would constitute a breach of our client’s Human Rights.
Lessons not learned
In a more recent request case we agreed with HMRC a timeline to provide the information over a period of three months.
Again, to our surprise, HMRC issued a TIEA to obtain the same information we agreed to provide.
I can only assume the reason for such a request is because the officer does not think we are going to provide all of the information or there will be additional information held by the fiduciary.
But HMRC has clearly not exhausted its information gathering processes and, in this case, has agreed a timeline with the client to provide it. At the very least the officer should wait until they are in receipt of our client’s information.
From our experience of dealing with TIEAs we recommend that clients question the validity of such a request.
This must be done quickly, as there is no right of appeal and the time limit provided to comply with a request is usually short.
This article was written for International Adviser by Jeff Millington, private client tax investigations director at law firm Withers.
