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You are here: BAILII >> Databases >> England and Wales High Court (Administrative Court) Decisions >> City Shoes Wholesale Ltd, R (on the application of) v HM Revenue and Customs [2016] EWHC 107 (Admin) (26 January 2016) URL: https://www.bailii.org/ew/cases/EWHC/Admin/2016/107.html Cite as: [2016] STI 249, [2016] EWHC 107 (Admin), [2016] STC 2392, [2016] BTC 5 |
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QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
R (on the application of ![]() |
Claimant |
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- and - |
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The Commissioners for Her Majesty's Revenue and Customs |
Defendant |
____________________
Timothy Brennan QC & Akash Nawbatt (instructed by The General Counsel and Solicitor to HM Revenue and Customs) for the Defendant
Hearing dates: 12 & 13 November 2015
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Crown Copyright ©
Mrs Justice Whipple:
INTRODUCTION
COMMISSIONERS' POLICY STATEMENTS
LDF
"It is the parties' intention that by the conclusion of the five-year taxpayer assistance and compliance programme under this MOU, there will, as a result of the procedures contemplated by this MOU, be no relevant persons with a beneficial interest in relevant property who are liable to taxation in one party but are using the laws of the other party to disguise such liability without paying appropriate tax in the manner contemplated by this MOU. The measures which the parties intend to take and which are described in this MOU are intended to achieve that objective."
It is evident that the purpose of the LDF, at the outset at least, was to bring into tax in the UK liabilities which were "disguised" by the laws of Liechtenstein. These would, by their nature, be liabilities of which the Commissioners were not aware, unless and until they were disclosed under the LDF.
"if you are eligible, HMRC will send you a registration certificate within 60 days of receiving your notification … if HMRC do not accept you into the disclosure facility they will write to you explaining why and tell you what you should do next."
"These further circumstances include cases:
- Where the relevant person enters the LDF to settle liabilities HMRC is already aware of
- Where the issue being disclosed has already been subject to an intervention that started more than three months before the date of application
- Where there is no substantial connection between the liabilities being disclosed and the offshore asset held by the relevant person as at 1 September 2009.
In cases where any of these circumstances apply the person making the disclosure will not be eligible for the shorter limitation period, the fixed penalty or the composite rate option under the LDF."
EBTSO
FACTS
Evidence
Discussions between BDO and the Commissioners
"? Issue dropping to 40% within HMRC.
Some within HMRC fundamentally disagree that such arrangements can enter LDF…"
"Lobby in HMRC keen to develop enquiries through EBT process & aghast that LDF available. But it is available. Entirely possible that it could be changed in the future ? accepted within HMRC that it is available."
The cases of Y Co and Z Co were discussed.
"… has been agreed on a 'without prejudice' basis for the three cases we have specifically discussed. It is highly likely that we may be able to extend this treatment to other identical / similar cases but at this time I suggest that we deal with each as they arise based on the facts applicable".
"? can now proceed to submit clients' reports on agreed basis".
"AL/AB [of the Commissioners] confirmed that the deal is consistent & agreed across all relevant departments".
"At the meeting in December we were talking about key fundamental technical issues, we were not aware of LDF process issues.
Certain clients wanted to go ahead & possibly jumped the gun a bit [because] wanted to file on named basis & make payments.
Appears there has been a misunderstanding as to where we are/were in the process".
The conclusion of the meeting was noted by Ms Pearson as follows:
"Do not send any more reports until they [the Commissioners] revert.
Will be onto it this week".
"Their understanding that will work with us to reach settlement and will do so …".
"Currently reviewing if CRO is allowable deduction within LDF terms and other matters are being discussed. ? cannot advise re further cases registering within LDF.
Other [accountants] getting same message.
This is the only information Joe has."
The suggestion of a review marked a shift in the Commissioners' approach.
"To be clear, the full favourable terms that will not be available are those that can lead to a reduction to the amount paid to HMRC. These are:
- A 10 per cent fixed penalty on the underpaid liabilities (for periods to 5 April 2009)
- Assessment period limited to accounting periods/tax years commencing on or after 1 April 1999
- The option to choose whether to use a single composite rate of 40 per cent or to calculate actual liability on an annual basis (for some years after 2008/09, a Single Charge Rate)
There will be no restrictions on access to the limited favourable terms:
- Assurance about criminal prosecution
- Single point of contact for disclosures."
The Commissioners' internal discussions
"What concerns me most is the possibility of having to backtrack on the BDO cases, although I remain hopeful that we won't have to do that."
"Hold fire please. This is tricky. I imagine BDO are looking to come in because of the treatment we have previously indicated they would get in the cases that are already in. I thought they were aware that recent developments have thrown that treatment into doubt but by the sound of it we need to have another conversation with them. …"
"…the fact is that since the LDF commenced in September 2009 we have accepted that when an existing enquiry case enters the LDF, all open issues can be settled via the LDF disclosure and our internal guidance and procedures have been predicated on that basis. If we seek to treat EBT cases differently we will be open to challenge..."
"[18] … We also decided that cases where HMRC had already accepted LDF registrations but which would not fall to be excluded (category 2 cases), should also be permitted to settle on the favourable terms; they had been given assurances from which HMRC could not withdraw…"
But in relation to Category 3 cases, the Commissioners sought more detailed information and also further legal advice on legitimate expectation before reaching a final decision.
"[21] … On 28 May 2014, having reviewed the legal advice and considered the matter further, I emailed the other Commissioners explaining that I did not consider it consistent with our agreed policy or even-handed in the treatment of the taxpayer population as a whole to allow settlement under favourable terms to Category 3 taxpayers…."
The other two Commissioners agreed with that view. So it was that the third option was adopted in relation to Category 3, and the full favourable terms were withdrawn.
"[23] We recognised that, in some circumstances, it could be unfair for HMRC to act in such a way as to defeat a legitimate expectation. It was for that reason, as explained above, that we decided not to reverse the settlements of those users of marketed avoidance schemes who had already settled through LDF or to alter the position of those EBT users who had had their applications for registration in the LDF accepted. However, it was our view and conclusion that the present claimants (who had their applications for registration put on hold pending our consideration of the availability of the LDF for EBT users) were in a materially different position and that it would not be unfair or improper, nor would it defeat any legitimate expectation, to refuse their applications to register for the favourable terms of LDF. Like all other EBT users they would, of course, still be able to avail themselves of the settlement opportunity under the EBTSO, or to litigate their positions before the Tax Chamber of the First-tier Tribunal in the ordinary way."
Factual dispute
HISTORY OF LITIGATION
LAW
Conspicuous Unfairness
"'Unfairness amounting to an abuse of power' as envisaged in Preston and the other Revenue cases is unlawful not because it involves conduct such as would offend some equivalent private law principle, not principally indeed because it breaches a legitimate expectation that some different substantive decision will be taken, but rather because either it is illogical or immoral or both for a public authority to act with conspicuous unfairness and in that sense abuse its power. As Lord Donaldson, MR, said in R v ITC ex parte TSW: 'The test in public law is fairness, not an adaptation of the law of contract or estoppel'.
In short, I regard the MFK category of legitimate expectation as essentially but a head of Wednesbury unreasonableness, not necessarily exhaustive of the grounds upon which a successful substantive unfairness challenge may be based."
"… on the one hand mere unfairness - conduct which may be characterised as "a bit rich" but nevertheless understandable — and on the other hand a decision so outrageously unfair that it should not be allowed to stand."
"[72] … Such a marked lack of even-handedness between the rival bidders calls for the most compelling justification, which I cannot find in the reasons advanced by the Commission in support of its decision.
…
[82] … I come back to the broader and central issue of fairness. … In my judgment the case is most appropriately dealt with by reference to the Court of Appeal's reasoning in Unilever. The Commission's decision to negotiate exclusively with TPL was, in all the circumstances, so unfair as to amount to an abuse of power. Unilever itself was an exceptional case, but this case, too, can properly be regarded as exceptional."
"[111] Logically, if there is a doctrine of conspicuous unfairness as a substantive head of judicial review which is to be treated as a distinct form of abuse of power, it must be for the court to decide whether in any particular case the decision–maker has infringed that principle since the court must decide whether power has been abused. It is no different from a court deciding that a decision has been exercised for an improper purpose or that an irrelevant consideration has been taken into account. But I do not believe that Unilever has formulated a fresh head of review conferring on the court a wide discretion to substitute its view of the substantive merits for the decision-maker. In order to constitute conspicuous unfairness, the decision must be immoral or illogical or attract similar opprobrium, and it necessarily follows that it will be irrational. I would treat this concept of conspicuous unfairness as a particular and distinct form of irrationality, which in essence is how it was viewed by Sir Thomas Bingham in Unilever. There are no doubt cases, of which Unilever is one, where the concept of fairness, and an allegation of conspicuous unfairness, better captures the particular nuance of the complaint being advanced than the concept of irrationality. Indeed, I think that is typically so in any case where the alleged unreasonable behaviour involves a sudden change of policy or inconsistent treatment. It is more natural and appropriate to describe such conduct as unfair rather than unreasonable. But in my view it is only if a reasonable body could not fairly have acted as the defendants have that their conduct trespasses into the area of conspicuous unfairness amounting to abuse of power. The court's role remains supervisory."
Comparative Unfairness – Tax Cases
"[14] … In my judgment it ought to be an essential element of any allegation of unfairness based on different treatment that the authorities either knew of, or at any rate plainly ought to have been aware of, the alleged disparate treatment relied on".
"[16] In my judgment this way of putting the case is wrong in principle and is a recipe for chaos in practice. Judicial review is about testing the legality of administrative action; save in exceptional cases, such as if jurisdiction is in issue, that can only properly be judged in the light of the factors which were known or ought to have been known by the administrator when the decision was taken. Of course, it may be necessary for an administrator to reconsider the decision if new facts emerge, but the legality of his action is not to be judged by material of which he was not, and could not be expected to have been, aware. Mr Pannick's argument amounts to saying that a body will be at risk of acting unfairly if it makes a rational and defensible decision as to the effect of the law in a particular situation and a court subsequently holds that the legal analysis was wrong. In my view that cannot be right. The argument equates a lack of fairness with an erroneous analysis of the law, at least where that mistaken analysis has led to the different treatment of persons in a legally identical position. In my judgment that expands the concept of fairness well beyond its established or legitimate limit".
"[29] … the fact that an officer has reservations about the ruling which another officer has given in respect of a different company cannot in my opinion create a duty on the commissioners to treat the two cases the same".
"If a Customs and Excise officer, with the full facts before him, has given a clear and unequivocal ruling on VAT in writing or, knowing the full facts, has misled a registered person to his detriment, any assessment of VAT due will be based on the correct ruling from the date the error was brought to the registered person's attention".
As is clear from its terms, the Sheldon statement prohibits the Commissioners from collecting tax where they have given a ruling or direction to the effect that that tax will not be due. It is based on the principle that the taxpayer has a legitimate expectation, arising out of the ruling or direction, that he, she or it will have the benefit of the promised treatment, at least for so long as the ruling or direction remains in place. The tax treatment can therefore only be altered with prospective effect once the error has been brought to the taxpayer's attention.
"[33] The essence of the challenge on unfairness in this context is disparate treatment as between identically placed taxpayers. … … If such unfairness exists, it is not altered by the fact that the Sheldon principle may prevent equal treatment being achieved by backdating the time from which the cable companies must pay VAT on the magazine supply. Conduct which is unfair and an abuse of power absent the Sheldon principle cannot become a proper exercise of power because the Sheldon principle has been adopted. …"
"[10] … But the mere fact that two taxpayers arguably in the same situation have not in fact been charged tax does not raise a case of unfairness without more. If there was some evidence, which it would be incumbent on Mr Sherry's client to produce, to show that there had been some unfairness; a basis for distinguishing between the taxpayers; some favour shown to the Inspector which caused the Revenue to charge his client to tax but not the others; if there was some specific basis to show that the decision made was based upon some caprice or discriminatory reason; why, then the case would be different. But it is not, in my judgment, open to a taxpayer, simply because one taxpayer has been charged and another has not, simply to raise the contention and then expect the Revenue to respond requiring them to disclose the private affairs of other taxpayers".
This passage requires some clarification. First, I believe that the Judge must have meant to say 'a lack of basis for distinguishing between the taxpayers', for it is only then that the taxpayer is likely to have a complaint at all. Secondly, it appears that the taxpayer in Weston was demanding disclosure of confidential details relating to other taxpayers, in which case the judge's dismissive response is readily understandable: a request for disclosure goes much further than a complaint of comparative unfairness, alone. Thirdly, it is a serious matter for a taxpayer to be charged tax when his competitor, in an apparently identical situation, is not charged tax. I do not believe that Moses J was saying anything different. The point he was making is that the disadvantaged taxpayer cannot raise a case of unfairness just by pointing to the difference in treatment; there must be something more to mount a challenge. This would accord with Elias J's first step in BSkyB.
ANALYSIS
Legitimate Expectation
Claimants' Grounds of Challenge
"[71] … if a taxpayer has acquired a legitimate expectation that he is entitled to the benefit of a particular concession, he also has a legitimate expectation that such concession will not be withdrawn retrospectively and that any withdrawal will be managed fairly. … the [Commissioners] should give reasonable notice of any withdrawal or alteration of a concession so as to allow the taxpayers time to make any necessary adjustments to their affairs…"
Thus the right to be warned of any withdrawal or alteration of a concession is a means of safeguarding the legitimate expectation of that treatment. If there is no legitimate expectation, I can see no basis for demanding that there should be advance warning before the promised treatment is withdrawn or altered. Further, I accept that in this case, to give such a warning could have risked frustrating the underlying purpose of the change of policy, which was to deny the LDF to EBT users for wider reasons of fairness.
CONCLUSION