Resolving tax disputes is complicated under the UK system. The enquiry process gives a great deal of control to Her Majesty's Revenue and Customs (HMRC or the Revenue) regarding the conduct of a dispute, and can limit the ability of a taxpayer to bring matters to a tribunal within the timetable they might wish. The remedies available in the tax tribunal can be limited and its jurisdiction restricted. In consequence, a variety of forums and causes of action may be available to address tax issues, and an early issue that will often arise is whether the taxpayer has chosen the wrong forum or action. The system has recently been further complicated by developments including the extension of HMRC's information-gathering powers, and the introduction of accelerated payment notices, follower notices and partner payment notices. These are discussed further below.
Tax disputes may also be resolved in a non-contentious manner. In 2012, HMRC published a commentary on its litigation and settlement strategy (LSS) and guidance on the use of alternative dispute resolution (ADR) in large and complex cases.2 The LSS sets out the framework within which HMRC seeks to resolve tax disputes through litigation or ADR. The aim behind the LSS is to provide a mechanism to settle disputes in a non-confrontational and collaborative way. However, in practice, HMRC's often litigious and uncompromising approach to disputes, especially in cases where the revenue exposure is high, means that a large number of tax disputes are still brought to the courts and tribunals.
II COMMENCING DISPUTES
i Corporation tax
The usual way in which a tax dispute arises, in the context of corporation tax, is with the filing of a tax return. A company is required to provide a self-assessment of its corporate tax liability on delivering a tax return.3 Most claims for relief must be made in the tax return, although it may be possible to claim for a relief, allowance or repayment separately within specified time periods.4
Commonly, returns must be filed within 12 months of the end of the accounting period for which the return is made.5 Companies must file their returns, accounts, computations and any claims for relief via HMRC's online Corporation Tax service save for exceptional circumstances.6 A company may also, by notice to HMRC within 12 months of the filing date, amend its own return.7
HMRC has a period of 12 months from the date the return was delivered to issue a notice of enquiry, with provisions to deal with returns that are filed late.8 An enquiry may relate to anything that is contained in (or required to be contained in) the self-assessment return, such as questions regarding any claim or election, or any amount that might affect the tax liability of the company or another company, in that accounting period or another accounting period.9 HMRC can make only one enquiry into each tax return, unless the company has made subsequent amendments to the return.10 If HMRC is otherwise out of time to issue a notice of enquiry into the original return, the scope of enquiry is limited to the amended content.11 The scope of enquiry would also be restricted if the amendment giving rise to the enquiry consisted of the making or withdrawing of a claim for group relief.12
There is no maximum duration set for an enquiry and HMRC is entitled to maintain an enquiry as long as it still reasonably requires information relevant to the company's tax position. Subject to the options discussed below, generally the taxpayer must await the conclusion of the enquiry before it can take any steps to commence litigation. An enquiry is completed once HMRC issues what is now termed a final closure notice.13 HMRC may only issue a final closure notice once it has reached a conclusion on all areas of dispute within an enquiry.14 The Court of Appeal has held that HMRC must carry out the following steps to validly issue a closure notice:
- decide whether to complete its enquiry;
- establish whether amendments need to be made to the self-assessment return and, if so, what they should be; and
- communicate the completion of the enquiry and the conclusions to the taxpayer.15
Following consultation exercises in 2014 and 2015, provisions to enable 'partial closure notices' were introduced in Section 63 of, and Schedule 15 to, the Finance (No. 2) Act 2017. The new legislation allows HMRC and taxpayers to conclude discrete matters during an enquiry where more than one issue is in dispute. HMRC is able to issue a partial closure notice in agreement with a taxpayer, at its own discretion or when directed to do so by the First-Tier Tribunal on application by a taxpayer.16 HMRC's policy, however, is that partial closure notices should only be issued in serious or complex cases.17 The measure will supposedly give HMRC and taxpayers greater certainty about tax owed on individual discrete matters without having to wait for all matters in a tax enquiry to be resolved.18
Closure notices, whether partial or final, only take effect once issued.19 Once a closure notice has been issued, HMRC cannot unilaterally withdraw it.20 A closure notice must state the officer's conclusions and what, if any, amendment is required to the return under enquiry to give effect to them.21 A final closure notice will take account of any partial closure notices and amendments to the return already issued.22 Taxpayers may appeal HMRC's conclusions and any amendments to the tax return within 30 days of being notified of the amendment.23
If the taxpayer believes HMRC is unduly extending the enquiry (or certain parts of it), it can apply to the First-tier Tribunal for a direction that HMRC give a closure notice within a specified period.24 The Tribunal will give the direction unless it is satisfied that HMRC has reasonable grounds for not giving notice within the specified period.25 The powers of the First-tier Tribunal in determining an application for a closure notice are quite broad and in some circumstances it can be used as a mechanism to determine substantive legal issues in dispute and if necessary make a reference to the CJEU for a preliminary ruling on EU law.26 Enquiries should not be used as a method of obtaining information as to a third party's tax affairs.27 Alternatively, a taxpayer who believes that HMRC's actions have resulted in an unacceptable delay to the enquiry process may submit a complaint to HMRC.28
Any question arising in connection with the subject matter of the enquiry while it is in progress may be referred to the First-tier Tribunal for determination while the enquiry continues, but only by agreement.29 Written notice of referral specifying the questions being referred must be given to the Tribunal jointly by HMRC and the company. The requirement of HMRC's consent to refer disputes for determination while an enquiry remains in progress renders this remedy of limited utility to the taxpayer. An enquiry can legitimately remain open for many years, for example where the return might be affected by other pending litigation.
If, during an enquiry, HMRC forms the view that the amount of tax stated in the company's self-assessment is insufficient and that, unless it is immediately increased, there is likely to be a loss of tax to the Crown, HMRC may amend the company's self-assessment in order to make good the deficiency (a 'jeopardy amendment').30 In doing so, HMRC can seek payment from a taxpayer without having to wait until it is ready to issue a closure notice. The circumstances likely to give rise to a jeopardy amendment include where a taxpayer intends to dispose of significant assets or become non-resident or insolvent.31
Once a closure notice has been issued, HMRC has no power to amend the tax return other than to enforce the conclusions stated in the notice.32 However, if at the conclusion of an enquiry HMRC remains of the view that the original return is incorrect, it will issue a closure notice requiring the return to be amended.33 As mentioned, this notice can be appealed against, and this is the most common way in which tax disputes proceed to litigation.
Once the time limit for an enquiry has passed, or an enquiry has been closed, the only way in which HMRC can examine a chargeable period is through the discovery process. HMRC may issue a discovery assessment:34
- when it becomes aware of the non-assessment of income or gains that ought to have been assessed;
- if an assessment is or has become insufficient; or
- if a relief given is or has become excessive.35
If the taxpayer has submitted a tax return, HMRC's power is restricted by two conditions. First, a discovery assessment may only be made where the return was not made in accordance with 'practice generally prevailing'.36 Second, either the understatement must have been careless or deliberate,37 or HMRC could not reasonably have been expected to be aware of the understatement based on the information made available to it by the taxpayer at the relevant time.38 Similarly, if HMRC discovers that a return for an accounting period incorrectly states an amount that affects, or may affect, the tax payable for another accounting period or by another company, they may make a 'discovery determination' of the amount of tax due by the company based on the information available to the officer.39
A taxpayer who disagrees with a closure notice, an assessment or other decision made by HMRC can appeal against it by giving notice in writing to HMRC, stating the grounds of appeal.40 The notice must normally be given within 30 days after the date of issue of the assessment or decision, although late appeals can be made in some circumstances.
Once a taxpayer has appealed there are three main options:
- a different HMRC officer can carry out a review of the decision;
- the taxpayer may ask the Tribunal to decide the matter in dispute; or
- the appeal can be settled by agreement at any time.
Reviews are not compulsory and, where HMRC carries out a review but the taxpayer still disagrees with the decision, the taxpayer can ask the Tribunal to decide the issue or continue negotiations with HMRC to settle the appeal by agreement.
During the course of an enquiry, HMRC may request that the taxpayer provide information and documents that are in that taxpayer's possession or power and that are relevant to its own tax position. If HMRC issues an information notice,41 the taxpayer must produce the information within such time, by such means and in such format as provided for in the notice.42 In relation to corporation tax enquiries, while the enquiry remains in progress, a company is entitled to amend its return, and to make or withdraw claims for group relief.43
Unless the issue of the notice to provide information has received prior approval from the Tribunal,44 there is a right of appeal against it.45 However, this appeal does not extend to any information or documents that form part of a taxpayer's statutory records.46 An appeal must be made to HMRC, in writing and specifying the grounds of appeal, within 30 days of receipt of the notice.47 If a taxpayer fails to make an appeal within the normal time limit, an appeal can still be made if HMRC agrees48 or, where HMRC does not agree, the Tribunal gives permission.
Schedule 23 to the Finance Act 2011 introduced and extended a common set of information-gathering and inspection powers for HMRC covering income tax, capital gains tax, corporation tax and value added tax (VAT); these are also known as HMRC's 'bulk and specialist information powers'. HMRC may, by written notice (also known as a data-holder notice), require a 'relevant data-holder'49 to provide 'relevant data'.50 The objective behind these provisions is to improve HMRC's data-gathering processes in order to ensure that interventions are better targeted against those who underpay tax;51 for this reason, a data-holder notice must not be used to obtain information about the data-holder's own tax position.52 The data requested may be general data, or data specific to a particular person or matter including personal data.53 The type of information must be specified in the notice.
If Tribunal approval is not obtained for the issue of a Schedule 23 data-holder notice, the data-holder may appeal a notice on any of the following grounds: it would be unduly onerous to comply with the notice, the data-holder is not a relevant data-holder or the data specified in the notice are not relevant data.54
There are four options for proceeding with an appeal:
- the appellant can require HMRC to review the matter in question;
- HMRC can offer to review the matter in question;
- the appellant can notify the appeal to the First-tier Tribunal for it to decide the matter in question; or
- the appeal can be settled by agreement between HMRC and the appellant.
Where the appellant requires HMRC to conduct a review, he or she can still appeal to the Tribunal if he or she disagrees with the review's conclusions, or if HMRC fails to complete a review within the required time.55
iii Other direct taxes
Virtually identical rules apply for other self-assessed taxes.56
For VAT, the onus is on the taxable person (i.e., the person registered for VAT) to file returns accounting for the VAT charged on and suffered in respect of any goods and services he or she supplies.57 In circumstances where HMRC disagrees with the content of a VAT return (or where the return has not been filed on time), it may issue an assessment to tax in respect of any VAT it considers owing.58 HMRC may also issue a default surcharge59 where a registered person has not filed their VAT return on time, or an inaccuracy penalty60 where they consider that a VAT return contains inaccurate information. Normally, HMRC will write to the taxable person in advance of issuing an assessment to highlight its concerns and provide an opportunity for that person to make representations to resolve the matter. In circumstances where the taxable person has sought a credit or refund of VAT,61 HMRC may either agree to the adjustment or issue a decision rejecting all (or some) of the amendment sought.
If the taxable person disagrees with all or part of an assessment or decision issued or made against him or her, he or she must appeal to HMRC within 30 days of the date on which the assessment or decision was issued or made. The taxable person may then either request an internal review (or accept an offer of one, if made) by HMRC, or notify his or her appeal to the First-tier Tribunal (Tax). If a review is requested, and the taxable person disagrees with the outcome of that review, he or she may still issue an appeal to the First-tier Tribunal (Tax), provided he or she does so within 30 days of the date of that review decision.
Where there are issues of public law, it may be necessary to seek redress by way of judicial review.
v Stamp duty land tax
HMRC may investigate a land transaction return provided that it notifies the purchaser of its intention to do so within nine months of the filing date. The filing date is 30 days after the effective date of the transaction. Once the nine-month period ends, HMRC can still make a discovery assessment if the underpaid tax was caused by a deliberate or careless action by the taxpayer, or if the taxpayer did not provide sufficient information at the date of filing for HMRC to know that the tax was underpaid.
vi Ruling procedures
Taxpayers can request guidance as to HMRC's interpretation of tax law and may also request a formal ruling from HMRC on specific facts and transactions, where appropriate. The Taxes Acts provide that advance clearance or approval may be given by HMRC, but only for certain types of transaction (e.g., clearance for a company purchase of its own shares).62
HMRC will give a post-transaction ruling where there is doubt about the tax consequences of a transaction that has been carried out. The application must be made to the tax office dealing with the taxpayer's affairs.63
Such a ruling is binding on HMRC provided all relevant information is supplied for the particular transaction concerned and in respect of the particular taxpayer. This applies even if there is a subsequent court decision. There is no appeal against a ruling as such, except where rights to appeal are set out in statute. The taxpayer is not, however, bound to follow it in completing its return. If HMRC does not accept the return, the issue can then be the subject of an appeal.
III THE COURTS AND TRIBUNALS
i Internal review process
A taxpayer generally has 30 days to appeal against an HMRC decision by way of notice of appeal. The taxpayer may, however, also request a review of the decision. In VAT cases HMRC is obliged to offer a review of the matter, and seeking a review will delay the period for seeking an appeal until 30 days after the review decision. In direct tax cases, the taxpayer can request, or HMRC can offer, a review of the matter,64 but only after HMRC has been notified by the taxpayer of the appeal.
An officer who has not previously been involved with the decision will carry out the internal review process; his or her aim is to provide a balanced and objective view.65 If HMRC offers a review, the taxpayer then has 30 days to accept HMRC's offer66 or, if they do not wish to accept the offer of a review, to notify the appeal to the tribunal.67 If the taxpayer accepts HMRC's offer, HMRC has 45 days to complete the internal review procedure and notify the taxpayer of its conclusions, unless varied by agreement.68 The taxpayer then has 30 days to notify the appeal to the tax tribunal.69 The taxpayer will require leave to appeal from the tax tribunal once the 30 days have passed.70 The matter will be considered settled in HMRC's favour if the taxpayer neither declines nor accepts HMRC's offer, nor notifies the tribunal in time.71
HMRC published 'Your Charter' in February 2013. This was updated in January 201672 and currently outlines seven rights that taxpayers can expect from HMRC. These are the rights to expect HMRC to:
- respect you and treat you as honest;
- provide a helpful, efficient and effective service;
- be professional and act with integrity;
- protect your information and respect your privacy;
- accept that someone else can represent you;
- deal with complaints quickly and fairly; and
- tackle those who bend or break rules.
A taxpayer may submit a complaint to HMRC in circumstances where it believes that HMRC has failed to uphold one or more of these rights.73 The taxpayer should submit as much information as possible in order for HMRC to investigate the complaint.
After receiving the complaint, HMRC will try to resolve the issue as quickly as possible. Possible remedies may include an apology, payment for worry or distress or reasonable costs (these may include professional fees). If the taxpayer is unhappy with the decision, they may request that it is referred for consideration to a different HMRC complaints adviser. Following the second HMRC decision, the taxpayer may request a referral to the Adjudicator's Office. The Adjudicator will act as a fair and unbiased referee in the matter. If the taxpayer is unsatisfied with the Adjudicator's decision, they may request their MP to refer the complaint to the Parliamentary and Health Service Ombudsman. This may be a lengthy process, depending upon the particular facts and the willingness of either side to reach an agreement, and taxpayers should continue to pay any tax due pending the resolution of the complaint. It remains to be seen how successfully and quickly the complaints process will operate in practice.
iii Courts and tribunals
The first instance tribunal for most tax disputes is the Tax Chamber of the First-tier Tribunal. It sits as a tribunal of one to three tribunal judges, depending on the issue's complexity. Appeals from decisions of the First-tier Tribunal are to the Tax and Chancery Chamber of the Upper Tribunal by leave only on questions of law. The Upper Tribunal can also determine cases transferred from the First-tier Tribunal and judicial reviews of the tax functions of HMRC,74 and can hear cases at first instance (i.e., bypassing the First-tier Tribunal), but only if such cases meet the category of 'complex' and the Upper Tribunal and both parties consent.75 The Upper Tribunal also sits as a tribunal of one to three judges, one of whom must be a judge of the Chancery Division of the High Court. Both bodies are independent of HMRC. There are no set parameters for the time period for determining cases, but a case requiring a hearing of less than a week should be capable of being heard by either tribunal within a year.
Appeals from the Upper Tribunal are to the Court of Appeal (which sits as three judges), then to the Supreme Court, again only with permission and (except in extreme cases) only on questions of law. Appeals to the Supreme Court will not be granted permission unless the matter is of general public importance. It sits as a panel of an uneven number of no less than three (but usually either five or seven) judges. The judges are independent of HMRC. Periods for hearings in the higher courts naturally tend to be longer. We would usually expect cases to take around 18 months to complete in the Court of Appeal, and two years in the Supreme Court.
Certain types of claim, as discussed below, must be brought in the High Court (either in the Chancery Division or the Administrative Court), rather than via the tribunal system. As an appellate body created by statute, the First-tier Tribunal has no general supervisory jurisdiction; claims concerning public law matters are therefore best brought by way of an application for judicial review in the High Court.76 Cases in the High Court should not take much longer than those in the First-tier Tribunal and in the area of judicial review tend to be quicker. Appeals from the High Court lie by permission to the Court of Appeal and then the Supreme Court.
IV PENALTIES AND REMEDIES
The UK applies a consolidated tax penalty regime that distinguishes between two main categories of penalties. It should be noted that different rules apply to accounting periods predating 1 April 2009.
The first type of penalty applies to the failure to make returns77 and to pay tax.78 These penalties take the form of an immediate penalty upon default, with incremental additional penalties depending on how late the tax is paid or the return submitted.79 Penalties for failure to file a return or to pay tax will not be imposed where the taxpayer has a reasonable excuse.
The second type of penalty applies to errors in returns,80 failure to give notice of chargeability to tax or unauthorised issue of VAT invoices.81 These penalties operate on a sliding scale depending on the degree of culpability and are quantified as a percentage of the lost revenue.
In relation to penalties for errors, degrees of culpability are categorised as 'careless', 'deliberate but not concealed' or 'deliberate and concealed'.82 Errors that are neither careless nor deliberate attract no penalty unless the person making the return later becomes aware of the error and fails to disclose it to HMRC, in which case it is treated as careless. The amount of a penalty ranges from 30 per cent of the lost revenue for careless defaults to 200 per cent in the most serious cases of deliberate and concealed action. Penalties can be reduced (and in the case of careless actions cancelled) if the person making the return discloses the error to HMRC. The amount of any reduction depends also on whether the disclosure was made following prompting by HMRC or was unprompted.
A similar system applies to penalties for failure to give notice of chargeability to tax or the unauthorised issue of VAT invoices, save that the 'careless' category is omitted. Instead, there is a catch-all category for cases where the failure was not deliberate. Again, the amount of the penalty ranges from 30 per cent of the lost revenue for actions that were not deliberate to 200 per cent for the most serious cases of deliberate and concealed actions involving offshore aspects.
As a further deterrent, HMRC may in certain circumstances, and where the potential lost revenue exceeds £25,000, publish the details of deliberate tax defaulters.83 This power applies to tax periods commencing on or after 1 April 2010 and to offences committed on or after that date. In cases of serious fraud, HMRC has the power to launch criminal investigations that can lead to criminal sanctions if convictions are secured. Such an approach is only appropriate in the most serious cases.
The Finance Act 2016 has made certain amendments to support the strategy to tackle offshore tax evasion. These amendments will help identify those that hide behind companies and trusts when committing offshore tax evasion and restrict the protection from naming those offshore evaders who do not come forward to HMRC unprompted.84
V TAX CLAIMS
i Recovering overpaid tax
Tax may be overpaid because of an innocent error in a return or, more commonly, because a decision of the courts indicates that the previously accepted tax treatment was wrong. In recent years this has arisen most prominently where a decision of the CJEU has held that tax otherwise due under the terms of domestic legislation was in fact raised incompatibly with EU rights, and that the tax levy was therefore not due.85 A similar circumstance will arise where the tax is found to be incompatible with an enforceable double taxation treaty. In those circumstances, the analysis would be that the terms of the double taxation treaty overrode the incompatible domestic legislation, so that the tax paid in accordance with that legislation was in fact paid under a mistake in respect of what the law actually required.86
In those circumstances, the most immediately obvious remedy would be to amend the tax return to reflect the tax actually owing consistent with a proper understanding of the position. Where this route is not possible, most usually because the period for amending the return has expired,87 UK law provides for other means by which an overpayment of tax can be recovered.
First, the High Court retains an inherent jurisdiction to hear claims in damages and restitution unless implicitly or explicitly excluded by statute.88 Where the ability to bring a High Court claim in restitution exists, it benefits from a number of distinct advantages.
Most importantly, if the overpayment of tax was made by mistake, such as the circumstances described above, then by reason of Section 32(1)(c) of the Limitation Act 1980, if the claim is brought as a High Court restitution claim, the limitation period of six years for seeking restitution of the tax overpaid does not commence running until the mistake is discovered or could, with reasonable diligence, have been discovered. In the context where the tax payment was originally made in accordance with the law as generally understood, but which was subsequently found to be incorrect by a judgment of the court (particularly of the CJEU), it has been held that the actual or constructive discovery of the mistake does not occur until the date of that judgment.89 Thus, a claim brought within six years of a relevant CJEU decision declaring a UK tax to have been incompatible with EU law can cover all such payments going back to the first payment of the tax, or the UK's entry to the EU, whichever is the later. Other benefits of High Court restitution claims over statutory claims are that the rate of interest recoverable tends to be higher90 and costs are usually recoverable by the successful party, whereas that is not generally the case for the statutory tribunal regimes.91
Second, with effect from 1 April 2010, the Finance Act 2009 introduced Paragraph 51A of Schedule 18 to the Finance Act 1998 (Paragraph 51A). This provision grants a general right to the recovery of overpaid corporation tax in most circumstances, subject to a limitation period of four years after the end of the relevant accounting period. There are similar provisions for income tax.92 It is also subject to a defence that the mistake must not have been in accordance with 'practice generally prevailing at the time'. However, as of 14 January 2014, this defence cannot apply where the claim seeks to enforce EU rights.93 The defence will be applied otherwise.
It remains an open question as to whether this overpayment remedy has the effect of excluding the ability to bring High Court claims in EU law matters, at least until the exclusion of the 'practice generally prevailing' defence on 14 January 2014. Although it is expressly stated that a claim under Paragraph 51A is the only mechanism by which HMRC can be liable to make a repayment of overpaid tax,94 the Supreme Court has held, in relation to the predecessor provisions,95 that the existence of the same 'general prevailing practice defence' rendered those provisions inapplicable to EU law claims, notwithstanding HMRC's contention that the defence would be disapplied in an EU law context, or the conclusion of the courts that those previous provisions were implicitly exclusive.96 However, where the provisions of Paragraph 51A do not apply, the ability to bring a High Court restitution claim will remain.
Third, claims for the recovery of under-declared input VAT and the recovery of over-declared output VAT, must be made within a period of four years from the date on which the return to which the under- or over-declared input or output VAT was to have been made.97 Claims in respect of bad debt relief must be made within four years and six months from either the date on which the debt fell due and payable, or the date of the supply, whichever is the later.98
The recovery of interest on the repayment of overpaid VAT is governed by the statutory scheme outlined in Section 78, VATA 1994. The validity of this provision was upheld by the Supreme Court in Littlewoods.99 Overturning the lower courts' finding that Section 78 should be disapplied, it was held that the adequate indemnity that Littlewoods was entitled to under EU law had been achieved by the national statute, and, therefore, it was not entitled to compound interest. However, the case was fact-specific to Littlewoods. The Supreme Court ruled that because Littlewoods' claim extended over 30 years, it received statutory simple interest more than 23 per cent higher than the principal sum of overpaid VAT and since statutory interest was 24 per cent of its actual loss, it had received 'reasonable redress', a definition of 'adequate indemnity' adopted by the Supreme Court. Section 78 was not endorsed as providing reasonable redress in all cases, and it remains to be seen if a claimant might attempt to argue that he or she had not been properly compensated for loss in respect of overpaid VAT.
Unfortunately successive UK governments have shown a habit of using retrospective legislation to cancel, restrict or inhibit claims for the recovery of overpaid tax particularly in the enforcement of EU rights. In 2003 the UK sought to restrict the limitation period applicable to such claims issued after the date that change was announced100 and in 2007101 announced the cancellation outright of all claims already issued within time where the statutory limitation period being validly exercised was longer than six years. Both those provisions were found incompatible with EU law and unlawful by the CJEU102 and Supreme Court.103 In 2013 further retrospective legislation amended the Court rules to protect only HMRC from orders for interim relief.104
In 2015 a particularly egregious form of retrospective legislation was introduced in an orchestrated way in Finance (No. 2) Act 2015. First with effect from 8 July 2015 the interest rate on outstanding judgment debts owed by HMRC was reduced from the standard 8 per cent per annum paid by defaulting judgment debtors to bank base plus 2 per cent per annum simple (currently 2.75 per cent per annum) just for HMRC.105 Then on 26 October 2015 a further change was inserted into the same Finance Bill to impose a 45 per cent tax charge ring fenced from reliefs and withheld at source on successful claims for the recovery of overpaid tax.106 The new charge replaces the current corporation tax charge of 20 per cent and applies to the interest component (and some principal amounts) where the rate of interest is calculated on the above basis, namely as a reflection of loss or gain and not on an uncommercial statutory rate. The charge applies even to past payments and judgments where appeals are still ongoing and in those cases will be backdated to the accounting period in which the receipt was recognised in the profit and loss account (although the charge itself will not actually be created until the appeals conclude in the future). The lawfulness of these provisions was upheld by the First-Tier Tribunal in July 2017 following a challenge by taxpayers subject to the charge.107 The Upper Tribunal heard an appeal from this decision in July 2018, however then decided to stay the case (prior to giving its decision) pending developments in other proceedings. While this litigation is pending, under the terms of this legislation, interest will accrue on the unpaid portion of any judgment debt at less than HMRC's cost of borrowing.
ii Challenging administrative decisions
Where there is no other right of redress or appeal against an action or decision by HMRC, a taxpayer may seek the judicial review of that decision.108 This may arise, for example, in circumstances where an assessment to tax has been raised in accordance with the law but in circumstances where HMRC acted unreasonably in doing so.109 An application for judicial review must be made promptly, and in any event within three months of the date when grounds for the application first arose.110 Judicial review is a discretionary remedy, and the decision will only be overturned by the court in fairly extreme cases.
An application for judicial review must be made to the Administrative Court of the High Court, which can either decide the case itself or transfer it to the Upper Tribunal.111
In a direct tax context, a claim for the recovery of tax wrongly paid can only be made by the party that paid the tax. In certain circumstances, the right to bring a claim can be assigned to another party.112 HMRC will accept that, provided the relevant conditions are met, an assignment of a High Court claim can be made but tend not to accept that statutory claims are capable of assignment, although there are cases in which the assignment of statutory claims has been upheld.113 In New Miles Ltd, the First-tier Tribunal allowed assignment of a right of appeal to the Upper Tribunal through substitution of the appellant, holding that such substitution was permitted as a 'change of circumstance' under Rule 9, FTR.114 Rule 9(1) permits the substitution of a party 'if the substitution had become necessary because of a change in circumstances since the start of proceedings'. By contrast, in Skywell,115 the First-tier Tribunal found that there was no such change in circumstances to justify the substitution of parties.116
Before the Court of Appeal in the FII case,117 the claimants argued that losses and other reliefs expended to shelter an undue charge were recoverable by way of a High Court restitution claim. Such an argument would enable company groups that surrendered reliefs to offset undue liabilities of other entities to recover those reliefs (or their value) so expended. This argument has been unsuccessful to date but remains the subject of further possible appeal to the Supreme Court.
Claims for the repayment of overpaid VAT under the statutory schemes outlined above may only be made by 'taxable persons', that is to say the entity that is registered with and accounts for VAT to HMRC. Following the CJEU decision in Danfoss,118 where a person (such as an end consumer) has overpaid VAT in circumstances where it is not possible to obtain redress against the person to whom the tax was paid (by way of ordinary civil recovery proceedings), the Member State is required to provide that person with a mechanism through which he or she can obtain recovery of the overpaid sums. Attempts in the UK to argue that applying that principle, the end payer of a VAT charge could use common law remedies in restitution to recover the overpaid VAT directly from HMRC were unsuccessful at the level of the Supreme Court.119
As a general rule, in the First-tier Tribunal each party bears its own costs. The Tribunal may make a costs order in situations where costs are 'wasted' by reason of the improper, unreasonable or negligent act or omission of any legal or other representative;120 or if a party acts unreasonably in bringing, defending or conducting the proceedings.121 Whereas the old test for costs was that such conduct had to be 'wholly unreasonable', the new test introduces a lower hurdle. There is a growing body of case law concerning the interpretation of 'unreasonable' conduct.122 Tribunals have held that a party (or their representative) acted unreasonably where they:
- failed to comply with tribunal directions;123
- introduced evidence at a late stage of the proceedings;124
- failed to attend a hearing;125
- attempted to rely on an argument which the Supreme Court had previously disposed of by majority judgment;126
- pursued a hopeless case which had an insufficient evidential foundation;127 and
- failed to withdraw from proceedings sufficiently in advance of the hearing.128
The Tribunal has the general power to order costs in cases that are categorised as 'complex',129 where costs will generally follow the event. However, once the taxpayer has been notified that the case is classified as complex, the taxpayer has 28 days to 'opt out' of the costs regime.130
In the Upper Tribunal, the High Court and the higher courts costs are, in principle, recoverable by the winning party. However, the rules governing their recovery are extremely complex.
i The Rees practice
HMRC has no intention of discontinuing from the Upper Tribunal and appeal courts its current costs practice (known as 'the Rees practice').131 HMRC will consider exercising its discretion to waive its right to costs where HMRC is appealing an adverse decision, and in cases involving financial hardship or a point of law that, if clarified, would benefit taxpayers as a whole. HMRC may also adopt the Rees practice in First-tier Tribunal cases categorised as 'complex' unless the taxpayer has opted out of the costs regime.
VII ALTERNATIVE DISPUTE RESOLUTION
Historically, ADR has not played a part in resolving tax disputes. However, HMRC has now published its LSS, commentary to the LSS and guidance on resolving tax disputes using ADR. When discussing ADR, HMRC refers to the use of 'mediation' rather than 'arbitration', as it feels that arbitration is not suited to the field of taxation.
Two pilot ADR projects, targeting different taxpayer profiles, were introduced by HMRC during 2011–2012 to explore when mediation might be appropriate for resolving tax disputes. Following the publication of two reports in July and September 2013 detailing the results of these pilot projects,132 HMRC's ADR capacity was expanded to include a dedicated ADR function, facilitated by its Dispute Resolution Unit. HMRC's ADR guidance notes the commitment to using a collaborative approach wherever possible; in the vast majority of cases, this will involve disputes being settled by negotiation and agreement between the parties, or by litigation, without recourse to ADR.
HMRC considers mediation to be appropriate in a range of cases, including those where collaborative working relationships appear to have broken down and facilitated mediation may help to restore them, and those where the issues appear to be 'all or nothing', but there is a possibility that structured discussion might uncover an alternative approach that would enable HMRC to resolve the dispute in accordance with the terms of the LSS.
In contrast, mediation is considered inappropriate where it would be more efficient to have an issue judicially clarified so that the precedent gained can be applied to other cases. Furthermore, mediation is not recommended where resolution can only be achieved by departing from an established HMRC viewpoint on a technical issue, and there are no exceptional facts or circumstances to justify a departure from law or practice.
Taxpayers are encouraged to ask HMRC to consider using ADR. HMRC will respond within 30 days with an answer as to whether ADR is appropriate for resolving the dispute. If so, HMRC will then send the taxpayer a memorandum of understanding to complete, which will set out the process and confirm the taxpayer's agreement to participate in ADR.133
If a taxpayer's dispute cannot be resolved and HMRC have made an appealable decision, taxpayers can ask for their dispute to be referred to an independent tribunal for a hearing or may ask for a statutory review.134
i General anti-abuse rule (GAAR)
Part 5 of the Finance Act 2013 took the significant step of introducing a GAAR to the UK, with effect from 17 July 2013. HMRC has also published and updated extensive guidance about the scope, objectives and application of the GAAR.135
The GAAR aims to target abusive tax avoidance schemes. It applies to corporation tax, income tax, capital gains tax, petroleum revenue tax, inheritance tax, stamp duty land tax, annual residential property tax, diverted profits tax and apprenticeship levy.136 VAT is excluded from its scope.
To determine whether a scheme should be counteracted as a result of being abusive, it must be determined if there are abusive arrangements that give rise to a relevant tax advantage and if it is reasonable to conclude that the tax advantage was the main purpose, or one of the main purposes, of the arrangements.137 The objective test for abuse is whether entering into the tax arrangements, or carrying them out, cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances (the double reasonableness test).138 The development of such a reasonableness test and its boundaries are awaited when the test is applied in practice.
If tax arrangements are found to be abusive, these arrangements are to be counteracted by making adjustments.139 If counteraction is used, consequential adjustments can be claimed to provide relief to the taxpayer to ensure there is not excessive taxation.140 HMRC's intention is that the GAAR be applied initially by taxpayers themselves, through their own counteraction using self-assessment or in their accounts and adjusting any tax advantage on a just and reasonable basis. HMRC also has powers of counteraction on a just and reasonable basis.141 Procedural amendments have been introduced, following the Finance Act 2016, to ensure that the GAAR procedure works efficiently in regards to marketed tax avoidance schemes, and to enable HMRC to provisionally counteract under GAAR, within assessing time limits, while maintaining the current procedural safeguards for taxpayers.142
The GAAR's counteraction measures will be subject to the usual appeals procedure, with normal time limits. If the matter proceeds to litigation, the burden of proof lies on HMRC to show that on the balance of probabilities the tax arrangement was abusive and that the counteraction imposed is just and reasonable.
Following a consultation in 2015,143 the Finance Act 2016 introduced a new specific penalty, which came into force in September 2016, for all cases successfully counteracted by the GAAR. If a taxpayer submits a return, claim or document to HMRC which includes arrangements that are later found to be counteracted, then the penalty, 60 per cent of the counteracted value, will apply.144 The aim of the penalty is to ensure an effective disincentive to enter into or engage in abusive tax avoidance.
The GAAR is a progression from the manner in which tax abuse has been countered by the courts in recent years using the Ramsay principle,145 which introduced the principle of purposive interpretation to tax disputes, whereby the wording of legislation is key, but where the purpose and context of the statute is considered as an aid to interpretation. Ramsay led to some uncertainty in the courts' approach to abuse (see BMBF146 and SPI).147
A recent decision, in UBS AG,148 illustrates the application of GAAR. The judges held that the transaction had 'no real world purpose of any kind', and found that a purposive interpretation would suggest that the scheme had been 'inserted for the sole purpose of tax avoidance'. This decision sheds some light on the courts' approach to abuse. However, it is yet to be seen how the rule will be developed.
As to the OECD BEPS proposals designed to combat the shifting of profits from one (high tax) jurisdiction to another (low tax) one, the UK has taken a very proactive approach to the implementation of the 15 action points. In March 2016, the UK government confirmed the implementation of hybrid mismatches (Action 2),149 interest deductibility (Action 4),150 intellectual property (Action 5),151 transfer pricing (Actions 8–10)152 and country-by-country reporting (Action 13).153 The UK considers that its current CFC rules are compliant with Action 3, although on 26 October 2017 the EU Commission issued a preliminary decision concluding that the provisions that either fully or partially exempted non-trading financing income of CFCs amount to state aid contrary to the EU Treaty. According to the Commission, the UK provisions selectively benefit groups whose non-resident financing income derives from investments that do not produce UK tax deductions or interest income from third parties over those groups who do. A final decision is awaited.
On 7 June 2017, the UK signed the OECD's Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI). The UK then deposited its instrument of ratification and final list of reservations and notifications on 29 June 2018. The MLI entered into force in the UK on 1 October 2018, and will begin to have effect in the UK for UK tax treaties in 2019 (the date will vary depending on the specific UK tax). The MLI will introduce changes to various articles of UK tax treaties that follow the OECD Model Convention, add at least one new article (Article 29 (Entitlement to Benefits)), and insert a preamble to clarify that the purpose of UK tax treaties is to avoid double taxation without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance.
The UK has chosen to apply Part VI (Arbitration) of the MLI. In the absence of resolution by mutual agreement between the tax authorities, taxpayers will be entitled to request that their case be submitted to arbitration. In relation to disclosure of aggressive tax planning (Action 12), the UK considers that it already had disclosure rules and that these are kept under review. There are, however, proposals to strengthen tax avoidance disclosure regimes regarding VAT and inheritance tax.
ii Accelerated payment notices, follower notices and partner payment notices
The Finance Act 2014 introduced new provisions, which came into force in July 2014, under which HMRC has the power in certain circumstances to require payment of disputed tax in advance of the ultimate resolution of the dispute.154
HMRC may issue an accelerated payment notice (APN) in circumstances where HMRC has opened an enquiry into the taxpayer's return or an appeal is ongoing.155 Where a notice is issued to a partner and an enquiry is opened into the partnership tax return, the notice is known as a partner payment notice (PPN), although the provisions are otherwise near identical.156 The return or claim must157 have been made in respect of a tax advantage arising from the arrangements in question. Further to this, one of the following requirements must be met:
- HMRC has given the taxpayer a follower notice in relation to the same return, claim or appeal;
- HMRC has allocated a Disclosure of Tax Avoidance Schemes reference number to the tax arrangements, or the scheme was included on HMRC's list of users who may be required to make an accelerated payment; or
- HMRC has issued a counteraction notice under the GAAR and at least two members of the GAAR Advisory Panel consider that entering into the tax arrangements was not a reasonable course of action.158
The APN or PPN must specify the amount of the payment.159 The taxpayer has 90 days to object in writing, following which HMRC will confirm, withdraw or, where the taxpayer objects to the amount specified, amend the APN or PPN. There is no right of appeal against the confirmation of an APN or PPN, and the taxpayer must make the payment before the relevant payment date.160 This also applies where an appeal is ongoing. If the taxpayer fails to make the payment by the relevant date, HMRC may issue penalties, beginning at 5 per cent of the amount in question.161 A recent decision held that a PPN can be issued to an LLP, as the relevant partners have the capacity to know of enquiries being opened, even if official notices were not sent to them.162
It is reported that, since 2018, HMRC has issued over 80,000 APNs (although it has retracted some 6,000). The notices, since their introduction, have received significant criticism and have been the subject of a number of legal challenges in recent years. In December 2017, the Court of Appeal robustly dismissed several such challenges.163 From a procedural standpoint, the High Court has held that taxpayers who are issued with APNs should generally exhaust their right to make representations under Section 222 FA 2014 before seeking to challenge the notice by way of judicial review.164
HMRC may issue a follower notice (FN) in circumstances where HMRC considers that there has been a final judicial ruling on a relevant issue to the disputed tax in question. The provisions operate in a similar fashion to those for APNs.165 The notice must be issued within one year of the later of the date of the ruling or date on which HMRC received the claim or appeal, and cannot be issued to the same taxpayer in relation to the same tax arrangement, tax advantage, ruling or period. The notice must identify the ruling which HMRC considers to be relevant, its reasoning for this belief, the effects of the taxpayer objecting to the FN and that penalties may apply if the taxpayer does not take corrective action.166 The taxpayer may amend the return (and notify HMRC) or object to the FN within 90 days by written representation.167 HMRC will consider any objection and either confirm or withdraw the FN; there is no right of appeal from a confirmation of the FN. Penalties of up to 50 per cent of the disputed tax may apply if the taxpayer refuses to take corrective action, although this is subject to HMRC's discretion.168
IX DOUBLE TAXATION TREATIES
In theory, double taxation conventions are, like any international treaty, not directly enforceable by taxpayers; they are no more than contracts enforceable by the contracting states themselves. Rights granted to individuals under international treaties are only enforceable to the extent they are incorporated by legislation. It is also permissible under UK law for legislation to be introduced that contradicts the terms of treaties, since the sovereignty of the Crown extends to breaching treaties. However, where a treaty has been introduced into UK law and its terms might conflict with domestic legislation that is capable of more than one meaning, then the meaning that is consistent with the treaty is to be preferred.169
The Vienna Convention on the Law of Treaties was incorporated into UK law on 27 January 1980. Its rules of interpretation are binding and it is frequently relied upon by the courts in interpreting the terms of double taxation treaties.170 The commentary to the OECD conventions can be relied upon to interpret the terms of treaties that follow the OECD Model.171
Double taxation conventions are incorporated into UK law by statutory instrument, which is secondary legislation that does not require passage through Parliament. The legislative power to do so is provided by Section 2, Taxation (International and Other Provisions) Act (TIOPA) 2010, although the important cases on its application concern the predecessor provision, Section 788, Income and Corporation Taxes Act (ICTA) 1988. Section 6, TIOPA provides that where the terms of a double taxation convention have been incorporated into law via a statutory instrument, they take effect 'despite anything in any enactment' but subject to two important restrictions.
First the treaty takes effect subject to the provisions in Part 2, TIOPA and Part 18, ICTA. Thus, the terms of a double taxation convention, even where incorporated into UK law by statutory instrument, can still be overridden by the insertion of an intentionally contradictory provision within those Parts.172 Second, Section 6, TIOPA only enables incorporation into UK law by this mechanism of those provisions of double taxation conventions that afford relief from double taxation in relation to the various taxing provisions included in that Section. If the tax concerned does not meet any of these descriptions, no rights provided by the double taxation convention will be enforceable. Although the current wording of the provision is somewhat different from the predecessor provision (Section 788, ICTA), that previous provision had been held not to extend to charges upon apportioned profits under the controlled foreign companies (CFC) rules173 or to advance corporation tax (ACT).174
There has been considerable litigation on the meaning and application of the non-discrimination articles (NDA) in double taxation conventions that follow the standard OECD Model wording,175 and from which the following principles derive:
- To establish whether the UK subsidiary of a company resident in the other contracting state is subjected to other or more burdensome taxation or requirements than another similar enterprise in breach of the NDA, the relevant comparison to make is with the treatment afforded to the UK subsidiary of a UK resident parent.176
- A breach of the NDA will, however, arise only where that difference in treatment is by reason of the foreign ownership of the UK subsidiary. In circumstances where the domestic legislation passes a tax liability from subsidiary to parent, it is permissible to refuse the same treatment to the cross-border group if the parent is not subject to UK tax. In those circumstances, the difference in treatment is not by reason of the foreign ownership, but by reason of the fact that the tax liability cannot be passed on to the parent, as it would not be liable to UK tax.177 Conversely, the refusal of group relief between two UK-resident subsidiaries of a common foreign parent or link company (where group relief would be available had the parent been UK-resident) would offend the NDA, as the liability of the parent company to UK tax is irrelevant to the entitlement to group relief between its resident subsidiaries.178
- The subject UK provisions must be considered as a whole when establishing whether other or more burdensome taxation or requirements arise contrary to the NDA. In Felixstowe Dock, a UK-resident joint venture company owned by a Luxembourg company was refused the ability to surrender losses to offset the profits of other UK companies within the consortium in circumstances where, had that link company been UK resident, consortium relief would have been available. This was held by the First-tier Tribunal to breach the NDA in the UK–Luxembourg treaty, even though the tax was paid by the other UK companies under ownership unconnected with the Luxembourg treaty.179
- Where a UK subsidiary of a UK parent could, by invoking EU rights, override a restriction that otherwise applies under UK legislation, it may breach the NDA not to extend the same treatment to a UK subsidiary of a foreign parent, whether or not that parent is resident in another Member State.180
i The UK courts' approach to the interpretation of European law
The English courts' first encounters with EU law and the case law of the CJEU were something of a culture shock. According to Lord Denning in Buchanan v. Babco:
They adopt a method which they call in English by strange words – at any rate they were strange to me – the 'schematic and teleological' method of interpretation […] all it means is that judges do not go by the literal meaning of the words or by the grammatical structure of the sentence. […] To our eyes – short-sighted by tradition – it is legislation pure and simple. But to their eyes it is fulfilling the true role of the courts.181
While the UK courts are now comfortable interpreting the EU VAT legislation in light of its scheme and purpose and seeking rulings in that field from the CJEU only selectively, they remain far less comfortable interpreting the TFEU in the context of challenges to direct tax provisions. Other than in minor cases, the UK courts have, therefore, tended to refer such cases to the CJEU, leading to a series of CJEU judgments on UK direct tax provisions over the past 20 years.182 In FII, the UK courts sought no fewer than three references, in part to clarify the guidance received from the CJEU.183
To date, in the direct tax field the UK courts have thus been concerned mainly with implementing interpretative rulings given by the CJEU. In that connection, a key issue for the courts to decide has been whether, in the light of the CJEU's guidance, the relevant domestic provisions fall to be disapplied as unlawful, or whether they should be judicially moulded to achieve a conforming interpretation.184 In a series of decisions, the English Court of Appeal, following earlier rulings of the House of Lords in the EU or the human rights cases of Ghaidan v. Mendoza,185 Pickstone v. Freemans186 and Lister v. Forth Dry Dock187 has departed significantly from traditional domestic principles of interpretation and construed UK provisions contrary to their wording to render them compatible with EU law (see in particular IDT,188 Vodafone II189 and the Court of Appeal's first judgment in FII).190 According to Lady Justice Arden in IDT:
It is also clear from the Ghaidan case that the interpretation of legislation under Section 3 [of the Human Rights Act] or the Marleasing principle may involve a substantial departure from the language used though it will not involve a departure from the fundamental or cardinal features of the legislation. It is possible to read the legislation up (expansively) or down (restrictively) or to read words into the legislation.191
Further, when analysing the application of the Marleasing principle in FII the Court of Appeal noted that: 'Statutory provisions can be read as subject to a limitation provided that the limitation does not go against the grain of the legislation.'192
Thus, in IDT, the Court of Appeal held that it was possible to mould the UK provisions on VAT to fill a gap in the UK legislation that allowed taxpayers to avoid paying tax on phone cards in either Ireland or the UK. In Vodafone II, the Court of Appeal held that the exceptions to the UK CFC legislation could be extended so as to render the legislation compatible with Article 43 TFEU as interpreted by the CJEU in Cadbury Schweppes. In FII, the Court of Appeal held that the UK provisions on ACT could be moulded contrary to their wording to give the claimants a tax credit where EU law so required.
It may be noted that in all three cases the Court of Appeal moulded the legislation to prevent the taxpayer from obtaining what it perceived to be a windfall. In IDT this defeated the taxpayer's claim entirely, and in Vodafone II and FII it had the effect of imposing retrospectively on the taxpayer an evidentiary burden not envisaged by the unmoulded legislation.
The Court of Appeal's findings in these cases have not been considered by the Supreme Court. It may be noted, however, that the Supreme Court did consider and overturn another finding of the Court of Appeal in FII, in which it held that Section 33, TMA 1970 could be moulded contrary to its wording to give the claimants an exclusive statutory remedy for their EU law rights, barring them from using their common law remedies with the accompanying longer time limits.
ii Specific rules relating to VAT
Current UK VAT thresholds
|Registration for taxable supplies||Taxable turnover of £85,000 in the previous 12 months|
|De-registration VAT||Taxable turnover of £83,000 or less in the previous 12 months|
|Registration for distance selling||Value of distance sales to UK customer exceeds £70,000 (if distance sales include excise goods, then registration is required regardless of the value)|
|Registration for acquisitions from other EU countries||Goods acquired exceed £85,000|
|Payment on account threshold||Annual VAT liability of £2.3 million or more. If the liability falls below £1.8 million, businesses can apply to stop making payments on account|
|Intrastat thresholds||The exemption threshold for dispatches is £250,000 in 12 months and for arrivals £1.5 million in 12 months. The delivery terms threshold is £24 million. The low value consignment threshold is £175|
|Error reporting threshold||£10,000 or 1 per cent of the total sales for the period (excluding VAT) subject to an upper limit of £50,000|
Corrections to VAT returns
For errors that exceed the error reporting threshold, a declaration should be made to the VAT Error Correction Team on form VAT 652.193 Errors below this threshold can be corrected by adjustment in the current VAT return.194
In circumstances where a taxable person (i.e., one registered for VAT) makes supplies of goods or services that are subject to VAT, any VAT incurred by that taxable person in the process of making those taxable supplies (input tax) is recoverable. Where a taxpayer makes supplies that are exempt from VAT, it is not possible for that taxable person to recover input tax attributable to those supplies. Input tax incurred in these circumstances is referred to as 'blocked' input tax.
In circumstances where a taxable person will make 'mixed' supplies of both taxable and exempt services (also referred to as business and non-business activities), it is possible to attribute the input tax incurred in making the different supplies directly; that which is attributable to the taxable supplies will be recoverable in the normal way as outlined above. Often it is not possible to attribute input tax directly, because the same supply has been used in relation to both taxable and exempt aspects of the business. Such input tax is referred to as 'residual' input tax. To calculate what proportion of residual input tax may be recovered, it is necessary to use a 'partial exemption' calculation. There are two types: the standard method or a special method. The detailed mechanics of those calculations can be found in VAT Notice 706.195
X AREAS OF FOCUS
Following the introduction of the GAAR in 2013, there has been sustained political pressure on HMRC to safeguard the UK tax base by combating illegitimate avoidance and abuse. We have already seen considerable litigation testing the boundary between acceptable and illegitimate tax avoidance, which is only likely to continue.
This political focus on HMRC to counter tax avoidance and increase recoveries has produced extensive new powers. As discussed above, over the past few years, new legislation has extended HMRC's powers over disclosure and introduced powers to issue notices to collect tax even before any court ruling on a dispute and without any form of judicial safeguard. In 2017, the Court of Appeal upheld HMRC's exercise of this power and, as things stand, it appears that HMRC intends to continue to use, and even increase the use of, its power to issue such notices in the coming years.
In recent years both the Supreme Court and CJEU have applied and developed the 'no possibilities' test in relation to cross-border group relief on subsidiary losses.196 In the Marks & Spencer case, the Supreme Court had previously found in favour of the taxpayer on the question of the relevant date at which the 'no possibilities' test should be applied. In February 2014, the Supreme Court considered the application of that test to group relief claims that had initially been made outside of the statutory time period and were later made again, within the statutory time period, upon dissolution of certain companies within the group. The Court held that the 'date of the claim' included those subsequent claims that had been issued within time. It also resolved the question of how to calculate a foreign loss for surrender for UK tax purposes in the company's favour, and found for HMRC on the limitation of claims that fell under the previous pay and file system. Prior to this, in December 2013 the CJEU handed down judgment in the third reference in the FII Group Litigation.197 The Court held that, in removing a cause of action for recovery of tax paid without notice, retrospectively and without transitional provisions, the UK government had breached EU law principles of effectiveness, legal certainty and legitimate expectations. European law has continued to influence litigation in both the direct and indirect tax areas. Recently, the Court of Appeal referred questions to the CJEU regarding the correct interpretation and application of the VAT Directive in relation to whether particular vehicle finance lease agreements constituted a supply of goods or services for VAT purposes. The CJEU gave its decision in favour of the taxpayer in October 2017.198 Transfer pricing is another area in which the European Commission has continued to be particularly active.199
The availability of compound interest in direct tax claims against HMRC appears to have now been finally determined in HMRC's favour following the Supreme Court's decision in Prudential200 this year. The Supreme Court, overturning the House of Lords' decision in Sempra Metals,201 held that Prudential was not entitled to compound interest in respect of any of its claims for overpaid corporation tax or ACT. As mentioned above, in the area of VAT, the Supreme Court recently overturned a decision of the Court of Appeal that entitled claimants to compound interest on claims for recovery of unlawfully levied VAT.202
A further issue being debated in the UK courts is whether HMRC can, both in principle and in practice, run a defence to claims in restitution of unduly paid sums that the Exchequer has changed its position by spending those sums, believing that they were lawfully due. This question came up for decision before the High Court in the Franked Investment Income Group Litigation. The defence was rejected not only on grounds of EU and English law but also on the grounds that HMRC had failed to show on the facts a causal connection between the receipt of the tax and the payments.
In 2017, the Supreme Court resolved an issue of particular significance in favour of HMRC. The Investment Trust Companies case203 involved the payment of unlawful VAT by investment trusts (ITCs) to their managers for management services. The managers then paid a proportion (the 75s) to HMRC and set the remaining proportion (the 25s) against input tax that the managers had paid to their third-party suppliers. The managers made claims under Section 80 VATA. HMRC repaid some of the VAT, but capped the claims at three years under Section 80(4). HMRC made further repayments for periods up until 4 December 1996 (the date when the cap was introduced), but refused claims after that date (the 'dead period'). The trusts then brought claims against HMRC for restitution at common law and repayment under directly effective EU law rights. Overturning the Court of Appeal, the Supreme Court has held that the investment trusts had no common law claim in restitution as they lacked a direct transfer between them and HMRC. This limited recovery to the portions recovered by the managers through Section 80 VATA.
Finally, a large number of claims were recently issued that challenge the legality of Paragraph 51A of Schedule 18 to the FA 1998, which effectively removes the High Court's jurisdiction to hear cases seeking common law remedies in situations where statutory remedies are available through the tax tribunals. Should these challenges succeed, a number of remedies that are arguably no longer available to claimants in tax matters will once again become available.
XI OUTLOOK AND CONCLUSIONS
2018 has been a busy year in the fields of direct and indirect tax, both in the domestic and European context. 2019 will again see the confluence of a number of forces. Continued public pressure on HMRC to challenge abusive tax arrangements is likely to be fuelled by the introduction of the ability to demand and collect tax in dispute without any prior judicial decision. It will be interesting to see how aspects of the GAAR, including the double reasonableness test, will be developed by the UK courts. Against this, a number of group litigation actions seeking the repayment of taxes said to have been paid in breach of EU law over several decades, which have been proceeding through the courts for almost 10 years, have now reached a position where a breach of EU law seems to have been established, giving rise to a whole slew of questions concerning the level of recovery. Some of these issues have been considered by the courts in the past year while others remain to be determined or are subject to appeal. HMRC will continue to be faced with demands to recover more tax on one hand and demands to repay tax collected many years ago on the other. The environment in the short term once again looks to be uncertain and challenging.
1 Simon Whitehead is a founding partner at Joseph Hage Aaronson LLP.
2 The most recent version of the commentary on the LSS (October 2017) is available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/655344/HMRC_Resolving_tax_disputes.pdf . HMRC, 'Resolving Tax Disputes - Practical Guidance for HMRC staff on the Use of Alternative Dispute resolution in Large or Complex Cases' is at http://webarchive.nationalarchives.gov.uk/20140109143644/http://www.hmrc.gov.uk/practitioners/adr-guidance-final.pdf. HMRC's information page for taxpayers on ADR is at https://www.gov.uk/guidance/tax-disputes-alternative-
3 The corporation tax self-assessment rules are set out in Schedule 18, Paragraphs 1–20 of the Finance Act (FA) 1998, as variously amended. The self-assessment regime applies to accounting periods ending on or after 1 July 1999.
4 Section 42, Taxes Management Act (TMA) 1970; Schedule 39, Paragraphs 37–65, FA 2008 reduced the normal time limit for claims and elections; from 1 April 2010, the time limit is four years from the end of the accounting period to which they relate, unless a different time limit is prescribed within the legislation for that particular claim or election. Previously, the time limit was six years. Claims with regard to group relief, capital allowances, research and development tax credits, film tax relief, land remediation tax credits and vaccine research tax credits must also be made in the company's tax return. If an error or mistake has been made in a claim and subsequently discovered, the claimant may make a supplementary claim within the time allowed for making the original claim.
5 Schedule 18, Paragraph 14, FA 1998, subject to specific exceptions for companies that prepare commercial accounts for a period longer than 18 months. A return must also be filed within three months from the date on which the notice requiring the return was served.
6 HMRC's online corporation tax service is accessible at www.gov.uk/file-your-company-accounts-and-tax-return.
7 Schedule 18, Paragraph 15, FA 1998.
8 Schedule 18, Paragraph 24, FA 1998.
9 Schedule 18, Paragraph 25, FA 1998.
10 Schedule 18, Paragraph 24(5), FA 1998.
11 Schedule 18, Paragraph 25(2), FA 1998.
12 Schedule 18, Paragraph 74(4), FA 1998.
13 Schedule 18, Paragraph 32(1A). Prior to the introduction of partial closure notices in November 2017, a notice completing an enquiry was simply termed a 'closure notice'.
14 Schedule 18, Paragraph 32(1A).
15 Revenue and Customs Commissioners v. Bristol & West Plc  EWCA Civ 397,  STI 1464.
16 HMRC 'Tax Enquiries: Closure Rules', 5 December 2016; Simon's Taxes, A6.415A.
17 HMRC Enquiry Manual: EM2161.
18 HMRC 'Tax Enquiries: Closure Rules', 5 December 2016.
19 Schedule 18, Paragraph 32(1B), FA 1998.
20 Revenue and Customs Commissioners v. Bristol & West Plc  EWCA Civ 397,  STI 1464.
21 Schedule 18, Paragraph 34(2), FA 1998.
22 HMRC 'Tax Enquiries: Closure Rules', 5 December 2016.
23 Schedule 18, Paragraph 34(3)-(4); HMRC Enquiry Manual: EM2164.
24 Schedule 18, Paragraph 33(1), FA 1998.
25 Schedule 18, Paragraph 33(3) FA 1998.
26 RCC v. Vodafone No. 2  EWCA Civ 1132,  STC 1530; Finnforest UK Ltd v. HMRC  UKFTT 342 (TC),  SFTD 889, The Claimants Listed in the Group Register of the Loss Relief Group Litigation Order v. HMRC  EWHC 205 (Ch).
27 Estate 4 Ltd v. HMRC  UKFTT 269 (TC).
29 Schedule 18, Paragraphs 31A–31D, FA 1998, as inserted by Schedule 29, Paragraph 7, FA 2001. The Tribunal's determination is binding on the parties as if it were a decision on a preliminary issue in an appeal, and must be taken into account by HMRC in reaching its conclusions on the enquiry.
30 Schedule 18, Paragraph 30, FA 1998.
31 HMRC Enquiry Manual: EM1953.
32 Schedule 18, Paragraph 34(2)(b), FA 1998.
33 Schedule 18, Paragraph 34, FA 1998.
34 Schedule 18, Paragraphs 41–44, FA 1998. The tax so assessed will be in addition to the tax charged under the self-assessment; see also Section 29, TMA 1970.
35 Schedule 18, Paragraph 41, FA 1998. See also Section 29(1), TMA 1970.
36 Schedule 18, Paragraph 45, FA 1998. See also Section 29(2) TMA 1970.
37 Schedule 18, Paragraph 43, FA 1998. See also Section 29(4) TMA 1970.
38 Schedule 18, Paragraph 44(1), FA 1998. See also Section 29(5) TMA 1970.
39 Schedule 18, Paragraph 41(2), FA 1998.
40 Schedule 18, Paragraphs 34(3)-34(4) and 48, FA 1998.
41 Schedule 36, Paragraph 1, FA 2008. Copies of documents can be produced unless the notice stipulates that originals must be submitted. A taxpayer that fails to comply with a notice may be liable to pay penalties.
42 Schedule 36, Paragraph 7, FA 2008.
43 Schedule 18, Paragraph 74, FA 1998. Group relief claims may be made or withdrawn at any time up to the latest of (1) the first anniversary of the filing date for the claimant's company tax return; (2) 30 days after closure of any enquiry into that return (unless the enquiry, being otherwise out of time, was limited to matters to which a previous amendment making or withdrawing a group relief claim relates or that are affected by the amendment); (3) 30 days after notice of any amendment of that return by HMRC following such an enquiry; and (4) 30 days after determination of any appeal against an amendment within (3), or at a later time if HMRC allows it. These time limits override the normal time limits for amendment of a company tax return. Withdrawals of claims must be made by amending the return, and a claim can only be amended by withdrawal and replacement by another claim.
44 Schedule 36, Paragraph 13, FA 2008.
45 Schedule 36, Paragraph 29, FA 2008.
46 Any entity that may be required to deliver a tax return is required to keep and preserve all records and documents that may be required to deliver a correct and complete return for an accounting period (e.g., invoices, receipts, expenses claims). These are the company's statutory records, which must be retained for six years after the end of the period to which the tax return relates or, with effect from 1 April 2009, for such shorter periods as may be specified in writing by HMRC; see Schedule 18, Paragraph 21, FA 1998, as amended.
47 Schedule 36, Paragraph 32, FA 2008.
48 HMRC must agree to a written request for a late appeal if it is satisfied that there was a reasonable excuse for not making the appeal within the time limit, and that the request was made without unreasonable delay after the reasonable excuse ceased.
49 Relevant data-holders include employers, employment agencies, payroll agents, deemed employers, banks and building societies, trustees, nominees, personal representatives, solicitors, agents (including insurance, patent and copyright agents), companies, stockbrokers, public bodies, the land registry, landlords, tenants, intermediaries, clearing houses, persons involved in the registration and administration of securities transactions, settlors, beneficiaries and merchant acquirers who process credit and debit card payments; see Paragraphs 8–27 of Schedule 23, FA 2011. Section 176, FA 2016 extends relevant data-holders to include providers of electronic stored value payments services that operate 'digital wallets' and Business intermediaries who facilitate transactions online. The categories broadly mirror those previously found in TMA 1970 but create some new ones, including charities and property managing agents. A person is still a data-holder if he or she previously fell within one of the categories of data-holder but no longer does so.
50 The Data-gathering Powers (Relevant Data) Regulations 2012 (SI 2012/847) came into force on 1 April 2012. They set out the information that data-holders must provide to HMRC on receipt of a data-holder notice. The Data-gathering Powers (Relevant Data) (Amendment) Regulations 2013 (SI 2013/1811), which came into force on 1 September 2013, set out the position in relation to merchant acquirer data-holders, and similar bodies. This includes information relating to employment-related payments, certain interest payments, payments derived from securities, rent and other payments arising from land, dealings in oil licences and payment transactions. The Data-gathering Powers (Relevant Data) (Amendment) Regulations 2016 (SI 2016/979), which came into force on 1 November 2016, specify the data required by HMRC from two new categories of relevant data holder; namely, electronic stored-value payment service providers and business intermediaries, as introduced by the Finance Act.
51 HM Treasury & HMRC, 'Overview of draft legislation for Finance Bill 2011' (December 2010) at http://webarchive.nationalarchives.gov.uk/20110203024958/http://www.hmrc.gov.uk/budget-updates/autumn-tax/tiins-all.pdf at p. 138.
52 Schedule 23, Paragraph 2(3), FA 2011.
53 Schedule 23, Paragraph 1(4), FA 2011.
54 Schedule 23, Paragraph 28, Finance Act 2011.
55 In direct tax cases, the taxpayer can request a review of a matter at any time after it has notified HMRC of the appeal (however, not once the Tribunal has been notified). HMRC has 30 days, or a longer period if reasonable, to give its view of the matter. From the day the Revenue gives notice of its view it has 45 days to carry out the review and give notice of its conclusions. By agreement, the 45-day period can be varied (Sections 49B and 49E, TMA 1970).
56 For personal income tax, see Sections 8–9C, TMA 1970 for returns, self-assessments, amendments or corrections to returns and assessments and enquiries; Sections 29, 34 and 36, TMA 1970 for HMRC's powers to issue assessments; Sections 31, 31A and 49, TMA 1970 for appeals by the taxpayer; and Sections 49A–49I, TMA 1970 for the appeal process. For partnerships, see Sections 12AA–12AD, TMA 1970 for partnership returns and statements, and amendments and corrections to partnership returns and enquiries; Sections 30B, 34 and 36 TMA 1970 for HMRC's powers to issue assessments; Sections 31, 31A and 49, TMA 1970 for appeals by the taxpayer; and Sections 49A–49I, TMA 1970 for the appeal process.
57 Section 25, VAT Act (VATA) 1994.
58 Section 73 VATA 1994.
59 Sections 59–70, VATA 1994. Provisions in Schedules 10–11, Finance (No 3) Act 2010, which introduce a consolidated penalty scheme for late filing of returns, are not yet in force.
60 A consolidated penalty regime for errors in returns for taxes including VAT was introduced in Schedule 24, Finance Act 2007, and applies to all return periods commencing on or after 1 April 2008 for which a return is required on or after 1 April 2009. For periods before this, the previous regime of misdeclaration penalties applies, see Sections 63–64, VATA.
61 Section 80, VATA 1994.
62 Sections 1044–1045, Corporation Tax Act (CTA) 2010.
63 HMRC's guidance on non-statutory clearance is at https://www.gov.uk/non-statutory-clearance-service-guidance. HMRC have published several checklists (Annexes A-E) setting out the information that needs to be provided in the clearance application (at https://www.gov.uk/government/publications/non-
64 Section 49A, TMA 1970.
65 Revenue & Customs Brief 10/09.
66 Section 49C, TMA 1970.
67 Section 49H, TMA 1970. If the taxpayer wishes to notify the tribunal outside of this period, it will require leave from the tribunal; see Section 49H(3).
68 Section 49E(6), TMA 1970.
69 Section 49G, TMA 1970.
70 Section 49G, TMA 1970.
71 Sections 49C and 49F, TMA 1970.
74 Section 15, Tribunals, Courts and Enforcement Act (TCEA) 2007.
75 Rule 28, The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273) (FTR).
76 Pertemps Ltd v. Revenue and Customs Commissioners  UKFTT 512 (TC),  STI 3256; Revenue and Customs Commissioners v. Dhanak  UKUT 68 (TCC),  STC 1525; Abdul Noor v. Revenue and Customs Commissioners  UKUT 71 (TCC),  STC 998, concerning a taxpayer's VAT appeal based on the public law concept of 'legitimate expectations'. See also Hok Ltd v. Revenue and Customs Commissioners  UKUT 363 (TCC),  STC 225.
77 Section 106, FA 2009; Schedule 55, FA 2009, as amended by Section 163 FA 2016.
78 Section 107, FA 2009; Schedule 56, FA 2009, as amended by Section 163 FA 2016.
79 Schedules 55 and 56, FA 2009.
80 Schedule 24, FA 2007, as amended by Section 163 FA 2016.
81 Schedule 41, FA 2008, as amended by Section 163 FA 2016.
82 Schedule 24, FA 2007, as amended.
83 Section 94, FA 2009, as amended by Section 164 FA 2016. This provision applies where a person incurs a penalty or penalties for one or more of the following: deliberate inaccuracy in a return; deliberately supplying false information or withholding information leading to an inaccuracy; failure to notify liability to tax or the unauthorised issue of a VAT invoice. See HMRC's guidance at https://www.gov.uk/government/publications/publishing-details-of-deliberate-tax-defaulters-pddd.
84 HMRC's 'Finance (No. 2) Bill 2016 Explanatory Notes Volume 2', Clause 152, 24 March 2016.
85 See, e.g., Joined cases C-397/98 and C-410/98 Metallgesellschaft Ltd v. IRC; Hoechst AG v. IRC ECR I-1727; case C-446/03 Marks & Spencer Plc v. Halsey (Inspector of Taxes)  ECR I-10837; case C-196/04 Cadbury Schweppes  ECR I-07995; case C-35/11 Test Claimants in the FII Group Litigation; case C-362/12 Test Claimants in the FII Group Litigation; case C-80/12 Felixstowe Dock and Railway Company Ltd and Others v. HMRC; Prudential Assurance Co ltd v. Revenue and Customs Commissioners  UKSC 39.
86 See Section IX. See, also, e.g., Revenue and Customs Commissioners v. UBS AG  EWCA Civ 119,  STC 588; NEC Semi-Conductors Ltd v. Inland Revenue Commissioners  UKHL 25,  STC 1265; Commissioners for Her Majesty's Revenue and Customs v. FCE Bank plc  EWCA Civ 1290,  STC 462; Percival v. Revenue and Customs Commissioners  UKFTT 240 (TC).
87 Schedule 18, Paragraph 15(4), FA 1998 for companies and Section 9ZA (2), TMA 1970 for individuals.
88 Autologic Plc v. IRC  UKHL 54,  1 AC 118; Monro v. Revenue and Customs Comrs  Ch 69; Test Claimants in the FII Group Litigation v. Commissioners of Inland Revenue  UKSC 19,  2 AC 337; Prudential Assurance Co Ltd v. Revenue and Customs Commissioners  UKSC 39.
89 Deutsche Morgan Grenfell Group plc v. IRC  UKHL 49,  1 AC 558.
90 Interest recoverable under statutory claims is set at the statutory rates that are intended to be below interest rates commercially available. Interest recoverable as part of a High Court restitution claim will in most circumstances be on a simple interest basis but under Section 35A of the Senior Courts Act 1984, which seeks to reflect the commercial cost to the claimant and which is therefore likely to be higher; Littlewoods Retail Ltd v. Revenue and Customs Commissioners  UKSC 70; Prudential Assurance Co Ltd v. HMRC  UKSC 39.
91 See Section VI.
92 Schedule 1AB, TMA 1970.
93 Sections 231 and 232, FA 2013 introducing Paragraph 51(9) and (10) of Schedule 18, FA 1998; Revenue & Customs Brief 22/10; Monro v. Revenue and Customs Comrs  Ch 69.
94 Schedule 18, Paragraph 51(6), FA 1998.
95 Section 33, TMA 1970 and Schedule 18, Paragraph 51, FA 1998: see Test Claimants in the FII Group Litigation v. Commissioners of Inland Revenue (SC).
96 Monro v. Revenue and Customs Comrs.
97 Regulations 29 and 34, VAT Regulations 1995 (SI 1995/2518).
98 Regulation 165A, VAT Regulations 1995.
99 Littlewoods Retail Ltd v. Revenue and Customs Commissioners  UKSC 70.
100 Section 320 Finance Act 2004.
101 Section 107 Finance Act 2007.
102 Case C-362/12 Test Claimants in the FII Group Litigation.
103 Test Claimants in the FII Group Litigation v. Commissioners of Inland Revenue  UKSC 19,  2 AC 337.
104 Section 234 Finance Act 2013, applied recently in Jazztel Plc v. Commissioners for Her Majesty's Revenue and Customs  EWHC 1830 (Ch) in the context of the Stamp Taxes Group Litigation.
105 Section 52 Finance (No. 2) Act 2015.
106 Section 38 Finance (No. 2) Act 2015.
107 BAT Industries Plc and others v. Commissioners for Her Majesty's Revenue and Customs  UKFTT 0558 (TC).
108 Simon's Taxes A5.702; R (on the application of Premier Foods (Holdings) Ltd)) v. Revenue and Customs Commissioners  EWHC 1483 (Admin),  STC 2384.
109 R v. Inland Revenue Commissioners, ex parte Unilever plc and related application  STC 681.
110 CPR 54.5(1).
111 Simon's Taxes, A5.702.
112 Trendtex Trading Corporation and another v. Credit Suisse  AC 679,  3 All ER 520.
113 Midlands Co-operative Society Ltd v. Customs and Excise Commissioners  STC 198; New Miles Ltd v. Revenue and Customs Commissioners (Hilton-Foster, applicant)  UKFTT 33 (TC).
114 New Miles, Paragraph 33.
115 Skywell (UK) Limited v. The Commissioners for Her Majesty's Revenue and Customs  UKFTT 611 (TC).
116 Skywell, Paragraph 19.
117 Test Claimants in the FII Group Litigation v. Revenue and Customs Commissioners  EWCA Civ 103; Test Claimants in the Thin Cap Group Litigation v. Revenue and Customs Commissioners  EWHC 2908 (Ch).
118 Case C-94/10 Danfoss and Sauer Danfoss, judgment of 20 October 2011.
119 See Investment Trust Companies (in liquidation) v. Commissioners for HMRC  UKSC 29.
120 Rule 10(1)(a), FTR and Section 29, TCEA 2007. Rule 35 of Tribunal Procedure (Amendment) Rules 2013 (SI 2013/477) inserted into Rule 10(1)(a), FTR that such an order also extends to 'costs incurred in applying for such costs'.
121 Rule 10(1)(b), FTR.
122 See in particular Market & Opinion Research International Limited v. HMRC  UKUT 0012 (TCC), Paragraphs 22–28; Gheorge Calin Cantana v. HMRC  STC 2138.
123 JH & IM Ward (Partnership) v. Revenue and Customs Commissioners  UKFTT 108 (TC).
124 Earthshine Limited v. The Commissioners for Her Majesty's Revenue and Customs  STI 2021.
125 Enviroengineering Limited v. The Commissioners for Her Majesty's Revenue and Customs  UKFTT 366 (TC).
126 Majid Alimadadian v. The Commissioners for Her Majesty's Revenue & Customs  UKFTT 641 (TC).
127 Stephen Ho v. The Commissioners for Her Majesty's Revenue and Customs (Income Tax)  UKFTT 387 (TC).
128 Tor View Self Storage Limited v. The Commissioners for Her Majesty's Revenue and Customs  UKFTT 0564 (TC).
129 Rule 10(1)(c)(i), FTR.
130 Rule 10(1)(c)(ii), FTR.
131 The Rees practice applies to both direct and indirect taxes. See HMRC, 'ARTG8670 – First-tier and Upper Tribunals: The tribunal hearing: Requests for HMRC to waive costs or fund customer's costs where there is a further appeal – Rees Practice' at https://www.gov.uk/hmrc-internal-manuals/appeals-reviews-and-tribunals-guidance/artg8670.
132 HMRC, 'Alternative Dispute Resolution for SME's and individuals: Project Evaluation Summary', July 2013; 'HMRC, Alternative Dispute Resolution in Large or Complex cases: Pilot Evaluation Summary', September 2013.
133 See HMRC website at https://www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr.
134 See HMRC website at https://www.gov.uk/guidance/tax-disputes-alternative-dispute-resolution-adr.
135 HMRC, 'HMRC's GAAR Guidance' (last updated in March 2018), at www.gov.uk/government/publications/tax-avoidance-general-anti-abuse-rules. Earlier versions of the guidance are available at https://www.gov.uk/government/publications/tax-avoidance-previous-guidance-on-general-anti-abuse-rule.
136 Section 206, FA 2013 as amended by FA 2015 and FA 2016.
137 Section 207, FA 2013.
138 Section 207(2), FA 2013.
139 Section 209, FA 2013 as amended by Section 156, FA 2016.
140 Section 210, FA 2013 as amended by Section 157, FA 2016.
141 Section 209, FA 2013 as amended by Section 156, FA 2016.
142 Schedule 43, FA 2013 as amended by Section 157, FA 2016.
143 HMRC's 'Penalties for the General Anti-Abuse Rule', Policy Paper, 9 December 2015.
144 Section 158, FA 2016.
145 Ramsay (WT) Ltd v. IRC  AC 300.
146 Barclays Mercantile Business Finance Ltd v. Mawson (Inspector of Taxes)  UKHL 51,  1 AC 684.
147 IRC v. Scottish Provident Institution  UKHL 52,  1 AII ER 325.
148 UBS AG v. Revenue and Customs Commissioners  UKSC 13,  1 WLR 1005.
149 This was enacted in the Finance Act 2016 with effect for payments from 1 January 2017.
150 This was enacted in the Finance Act 2017.
151 This was enacted in the Finance Act 2017 with effect from 1 July 2016.
152 This was enacted in the Finance Act 2016 and has effect for all accounting periods beginning on or after 1 April 2016 for corporation tax purposes.
153 The Finance Act 2015 gave the UK Treasury authority to introduce regulations implementing country-by-country reporting. The Taxes (Base Erosion and Profit Sharing) (Country-by-Country) Regulations 2016 were subsequently made on 26 February 2016 and came into force on 18 March 2016.
154 Sections 199–233, FA 2014 and Schedules 30–33, FA 2014.
155 Section 219(2), FA 2014.
156 Schedule 36, FA 2014.
157 Section 219 (3), FA 2014.
158 Section 219(4), FA 2014.
159 Section 220, FA 2014.
160 Section 222, FA 2014. If the taxpayer does not make written representations, the payment date will be 90 days from the date that the APN was issued. If they make written representations, the payment date will be the later of 90 days from the date of issue of the APN or 30 days following notification of confirmation of the APN by HMRC; see Section 223, FA 2014.
161 Section 226, FA 2014.
162 Sword Services Ltd v. Revenue and Customs Commissioners  4 WLR 113,  STI 1799.
163 Rowe and others v. HMRC and Vital Nut Co Ltd and others v. HMRC  EWCA Civ 2105. See also R. (on the application of Haworth) v. HMRC  EWHC 1271 (Admin).
164 R. (on the application of Archer) v. HMRC  EWHC 695 (Admin).
165 Section 204, FA 2014.
166 Section 206, FA 2014.
167 Sections 207-208, FA 2014.
168 Section 208(2), FA 2014 and Section 211, FA 2014.
169 Lord Diplock in Salomon v. Customs & Excise  2 QB 116 at 143.
170 See Bayfine UK v. Revenue and Customs Commissioners  EWCA Civ 304,  STC 717; Revenue and Customs Commissioners v. Smallwood & Anr  EWCA Civ 778,  STC 2045; Paul Weiser v. The Commissioners for Her Majesty's Revenue & Customs  UKFTT 501 (TC); Anson v. Commissioners for Her Majesty's Revenue and Customs  UKSC 44,  4 All ER 288.
171 For example, The Felixstowe Dock and Railway Company Limited v. Commissioners for Her Majesty's Revenue and Customs  UKFTT 838 (TC),  SFTD 366, Paragraph 19.
172 For example, in 1992 Section 808A was introduced into Part 18 of ICTA to override the interpretation given to the arm's-length test by the then tax tribunal, the Special Commissioners of Income Tax, which excluded consideration of the amount of the loan under the thin capitalisation terms of certain double taxation conventions. This provision was repealed by Schedule 10, Paragraph 1, TIOPA 2010.
173 Bricom Holdings Ltd v. Commissioners of Inland Revenue  STC 1179.
174 The conclusion of the Court of Appeal and two members of the House of Lords in NEC/Boake Allen, the others offering no opinion on the point. Boake Allen Ltd & Ors v. Revenue and Customs Commissioners  EWCA Civ 25;  STC 606, and  UKHL 25,  1 WLR 1386.
175 Specifically, the treaties with Japan, Luxembourg, Switzerland, the United States and Ireland. Boake Allen (HL); Revenue and Customs Commissioners v. UBS AG; Test Claimants in the Thin Cap Group Litigation; Commissioners for Her Majesty's Revenue and Customs v. FCE Bank plc; The Felixstowe Dock and Railway Company Limited v. Commissioners for Her Majesty's Revenue and Customs; Percival v. The Commissioners for Her Majesty's Revenue & Customs  UKFTT 240 (TC),  STI 2308.
176 Boake Allen (HL).
177 Boake Allen.
178 Commissioners for Her Majesty's Revenue and Customs v. FCE Bank plc; The Felixstowe Dock and Railway Company Limited.
179 The Felixstowe Dock and Railway Company Limited.
180 This argument has only arisen for decision to date in the context of the disallowance of interest deductions for thin capitalisation reasons: Test Claimants in the Thin Cap Group Litigation, where while upholding the argument in principle the Court found it was inapplicable to those circumstances. It has also been litigated in relation to cross-border group relief: Finnforest UK Limited & ors v. Revenue and Customs Commissioners  UKFTT 342 (TC),  SFTD 889.
181  2 WLR 107.
182 Case C-264/96 Imperial Chemical Industries v. Colmer  ECR I-04695; judgment of 8 March 2001 in Joined cases C-397/98 and C-410/98 Metallgesellschaft Ltd v. IRC; Hoechst AG v. IRC  ECR I-1727; case C-446/03 Marks & Spencer Plc v. Halsey (Inspector of Taxes)  ECR I-10837; case C-196/04 Cadbury Schweppes  ECR I-07995; case C-374/04 Test Claimants in Class IV of the ACT Group Litigation  ECR I-11673; C-446/04 Test Claimants in the FII Group Litigation  ECR I-11753; case C-524/04 Test Claimants in the Thin Cap Group Litigation  ECR I-02107; case C-369/04 Hutchison 3G and Others  ECR I-05247; case C-201/05 Test Claimants in the CFC and Dividend Group Litigation  ECR I-02875; judgment of 6 September 2008 in case C-18/11 Philips Electronics UK Ltd; judgment of 13 November 2012 in case C-35/11 Test Claimants in the FII Group Litigation; judgment of 12 December 2013 in case C-362/12 Test Claimants in the FII Group Litigation; judgment of 1 April 2014 in case C-80/12 Felixstowe Dock and Railway Company Ltd and Others v. HMRC.
183 Cases C-446/04, C-35/11 and C-362/12, Test Claimants in the FII Group Litigation.
184 Case C-106/89 Marleasing v. Comercial Internacional de Alimentación  ECR I-4135.
185  UK HL 30,  3 All ER 411.
186  AC 66.
187  1 All ER 1334, 1991, AC 546.
188 HMRC v. IDT Card Services Ireland Ltd  EWCA Civ 29,  STC 1252.
189 Vodafone 2 v. Commissioners for Her Majesty's Revenue & Customs  EWCA Civ 446,  Ch 77.
190 Test Claimants in the FII Group Litigation  EWCA Civ 103.
191 HMRC v. IDT Card Services Ireland Ltd, Paragraph 89.
192 Test Claimants in the FII Group Litigation  EWCA Civ 103, Paragraph 260.
193 HMRC guidance is found in VAT Notice 700/45 at https://www.gov.uk/government/publications/vat-notice-70045-how-to-correct-vat-errors-and-make-adjustments-or-claims.
195 HMRC 'VAT Notice 706: partial exemption' at https://www.gov.uk/guidance/partial-exemption-
vat-notice-706. See also HMRC, 'VAT Partial Exemption Toolkit', July 2017 at https://www.gov.uk/government/publications/hmrc-vat-partial-exemption-toolkit--2.
196 Marks & Spencer Plc v. Revenue and Customs Commissioners  UKSC 30,  1 WLR 1586 and  UKSC 11,  1 WLR 711; case 322/11 Re K, judgment of 7 November 2013; case C-123/11 A Oy, judgment of 21 February 2013.
197 Case C-362/12 Test Claimants in the FII Group Litigation, judgment of 12 December 2013.
198 Mercedes-Benz Financial Services UK Ltd v. Revenue and Customs Commissioners  EWCA Civ 1211; case C-164/16 Revenue and Customs Commissioners v. Mercedes-Benz Financial Services UK.
199 See the European Commission's website at ec.europa.eu/taxation_customs/taxation/company_tax/transfer_pricing/index_en.htm.
200 Prudential Assurance Co Ltd v. HMRC  UKSC 39.
201 Sempra Metals Ltd v. HM Commissioners of Inland Revenue  UKHL 34,  1 AC 561.
202 Littlewoods Retail Ltd v. Revenue and Customs Commissioners  UKSC 70.
203 Investment Trust Companies (in liquidation) v. Commissioners for HMRC  UKSC 29.