In Tony Michael Jimenez v FTT and HMRC [2017] EWHC 2585 the High Court found on judicial review that a Schedule 36 information notice has territorial limits; it could not be issued to a non-resident taxpayer and should be quashed. This decision was overturned by the Court of Appeal.
A Schedule 36 FA 2008 notice is a formal request by HMRC for information. Notices may be issued:
- To groups of taxpayers.
- To third parties, without the taxpayer’s knowledge.
- In respect of an information request made by a member of another EU state (or other country or territory if there is an international cooperation agreement).
- The FTT must approve third party notices unless the taxpayer has agreed and in certain special circumstances.
Tony Michael Jimenez was a non-resident living first in Cyprus and then Dubai during the period covered by the notice; there are very few other facts provided in the case reports but it seems that he was a British national:
- A Schedule 36 notice was issued for the period 6 April 2004 to 5 April 2013 and sent to him in Dubai.
- HMRC argued that Schedule 36 notices have no territorial limit and apply to all taxpayers.
- The claimant applied for judicial review and argued, relying on the Masri principle, that the power to issue notices under Schedule 36 does not have extra territorial effect.
- The Masri principle may be defined by the statement in the case Masri v Consolidated Contractors [2009] UKHL 43 that “unless the contrary intention appears, an enactment applies to all persons on matters within the territory to which it extends, not to any other persons and matters.”
The High Court found:
- The fact that Schedule 36 permits the seeking of information for checking the liability of individuals to tax in member States or States in respect of which international tax enforcement arrangements have been made points to the conclusion that its reach extends only to the UK.
- If HMRC wants to seek information about liability to UK tax from persons who are abroad it should rely on mutual assistance arrangements with the relevant state (and there were such agreements with Cyprus and Dubai for the period covered by the notice).
- The wording of Schedule 36 does not suggest that it was intended to have extra territorial effect:
- It does not mention territorial limits
- It provides for the inspection of business premises and it is hard to see how this could be achieved overseas
- The provisions for penalties and prosecution could then apply to persons abroad.
- As an enforcement provision a notice cannot be given to a person abroad therefore the notice in the case should be quashed.
- As an aside, the judge criticised the handling by the case of the FTT, stating that a more transparent monitoring system for schedule 36 may better promote the public interest and result in fewer judicial review cases; here the taxpayer was not allowed to attend the FTT hearing nor was he given a full record of the hearing.
Comment:
This decision was overturned on appeal by HMRC see Tony Michael Jimenez v FTT [2019] EWCA Civ 51
Links:
Tony Michael Jimenez v FTT and HMRC [2017] EWHC 2585
Schedule 36 information notices
Residence v non-residence: tax treatment
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