UK Uncut loses: Taxman’s Goldman Sachs deal “not a glorious episode”, but lawful

281851582_781339792001_110208UKUncut-4336146UK Uncut Legal Action Ltd v. (1) Commissioners of Her Majesty’s Revenue and Customs (HMRC) and (2) Goldman Sachs – read judgment

Tax avoidance has hit the news again, with Apple currently facing questions from the US Senate about its exploitation of Irish company law loopholes and David Cameron writing to offshore tax havens to push for more transparency over tax rules. As it happens, the High Court has just handed down a ruling in a case which raises many of the same issues.

The campaign group UK Uncut brought a judicial review claim against HMRC. They argued that it was unlawful for HMRC to reach a confidential settlement in 2010 with the investment bank Goldman Sachs over a multi-million pound unpaid tax bill arising out of a failed tax avoidance scheme. Mr Justice Nicol held that HMRC’s decision was not unlawful, but criticised the actions of HMRC officials and HMRC have acknowledged that the manner in which the settlement was agreed involved several mistakes.

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Strasbourg rules that excessive tax rates offend A1P1

income taxN.K.M v. Hungary, ECtHR, 14 May 2013, read judgment

Those of a certain age will remember when top tax rates in the UK were 98%. This was the marginal rate of tax in this successful claim that such taxation offended Article 1 of the 1st Protocol (A1P1) – the peaceful enjoyment of possessions. But the very wealthy seeking to safeguard their bankers bonuses may not obtain too much comfort from the Strasbourg ruling, as the facts were fairly extraordinary.

The applicant had been a Hungarian civil servant for 30 years until her dismissal (with many others) in July 2011. Long-standing rules gave her 8 months severance pay. The 98% tax rate was introduced in 2010; it was then successfully challenged in the Hungarian Constitutional Court. On the day of the Court’s adverse judgment, the tax was re-enacted, but this time the 98% rate was applied to pay exceeding 3.5m forints – c. £10,000 – and, further, only where the earnings came out of specified categories of public sector employees.

A fresh challenge in the Constitutional Court annulled the retrospective effect of this law, but could not as a matter of jurisdiction review the substantive aspects of the tax. So the applicant went to Strasbourg to challenge the tax when deducted from her pay.

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Legal advice privilege should not extend to accountant’s advice, says Supreme Court

tax-erase-remove-lower-270x167Prudential plc and another , R (on the application of) v Special Commissioner for Income Tax and another [2013] UKSC 1 23 January 2013 – read judgment

The Supreme Court has ruled that legal advice privilege should only apply to advice given by a member of the legal profession; that this is what the common law has always meant, and that any wider interpretation would lead to uncertainty. Two strong dissents do not find any principled underpinning for the restriction of the privilege to advice from solicitors or barristers.

The following summary is based on the Supreme Court’s press release (numbers in square brackets denote paragraphs in the judgment).

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No removal of right of appeal without clear and express wording

The Queen on the application of Totel Ltd v The First-Tier Tribunal (Tax Chamber) and The Commissioners for Her Majesty’s Revenue and Customs  [2012] EWCA Civ 1401 – read judgment

Tax litigation is not the most obvious hunting ground for human rights points but if claimants feel sufficiently pinched by what they perceive as unfair rules, there is nothing to stop them appealing to the courts’ scrutiny of the lawfulness of those rules.

Human rights were not raised per se in this appeal but constitutional principles which arguably play the same role made all the difference to the outcome.

This case concerned the removal of a right of appeal by an Order in Parliament that stopped the appellant company (T) in its tracks, so naturally it turned to judicial review to find a remedy that the tax tribunal was not prepared to grant. T prayed in aid a fundamental principle of our unwritten constitution set out in  R (Spath Holme Ltd) v Secretary of State for Transport, the Environment and Regions [2000] 2 WLR 15:

Parliament does not lightly take the exceptional course of delegating to the executive the power to amend primary legislation. When it does so the enabling power should be scrutinised, should not receive anything but a narrow and strict construction and any doubts about its scope should be resolved by a restrictive approach.[35] Continue reading

Legal professional privilege not available for communications with accountants

Communications from an accountant giving legal advice do not attract legal professional privilege. The rule is only  available if the advice is sought from a lawyer.

Notices  under the Taxes Management Act 1970 (“Section 20 notices”) were served on the appellant company by the Revenue with a view to investigating a commercially marketed tax avoidance scheme. The appellant asserted that the notices required production of documents by which they sought or received legal advice on tax matters, in some cases from counsel and foreign lawyers, and in others from accountants.

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Retrospective legislation on double taxation relief not a breach of the human rights of a taxpayer [updated]

Huitson, R (on the application of) v Revenue and Customs [2010] EWHC 97 (Admin)

Robert Huitson brought a Judicial Review against HM Revenue and Customs in order to challenge under the Human Rights Act 1998 sections 58(4) and (5) of the Finance Act 2008. He contended that these sections of the 2008 Act were incompatible with Article 1 of the First Protocol to the European Convention of Human Rights (“the ECHR”).

The claim related to a tax avoidance scheme based on the Isle of Man, which sought to take advantage of the UK and Isle if Man double taxation arrangement. The Claimant challenged HM Revenue’s attempt to retrospectively claw back taxation under the 2008 Act.

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