In Aozora GMAC v HMRC [2019] EWCA Civ 1643 the Court of Appeal agreed that the taxpayer did not have a legitimate expectation that it could rely on HMRC’s published guidance; the degree of unfairness and detriment suffered from the change in the guidance was not sufficiently high.

Aozora applied for judicial review of HMRC’s decision to reject their claim for double tax relief. They asserted that the claim was in line with HMRC’s International Manual, there was a legitimate expectation that this could be relied upon and therefore HMRC should have allowed the claim.

  • The High Court, whilst agreeing that the manual constituted a “relevant representation”, making it reasonable for a taxpayer to assume that it was correct, rejected Aozora’s claim; they were not convinced Aozora (or its advisers) had relied on the guidance in question.

Aozora appealed claiming that the High Court had erred in:

  • Holding that Aozora must itself have relied on the representations in the manual; it is sufficient that their tax advisers relied on the representation.
  • Misinterpreting the written evidence of the advisers that they did rely on the representation.
  • Holding that Aozora had to prove what advice would have been given or what it would have done if the representation had not been made or if the Manual had correctly stated the law.
  • Holding that it was not conspicuously unfair for HMRC to resile from their representation.

The Court of Appeal upheld the decision of the High Court though they did agree that the statement in the manual was a representation which could be relied upon.

The court also disagreed with the High Court that reliance by an adviser rather than the taxpayer is fatal to a claim of legitimate expectation but held:

  • The degree of unfairness arising for Aozora was not sufficiently high to prevent HMRC applying a revised interpretation of the law if their earlier, different interpretation was incorrect.
  • The kind of representation relied on by Aozora, though clear, unambiguous and unqualified, was weak as it was only a representation as to HMRC's opinion as to the law.
    • Advice had been obtained from specialist tax advisers who were not at any great disadvantage compared to HMRC when coming to their own view of the law and it was that view on which Aozora relied.
  • Aozora had not shown it had suffered serious detriment due to reliance on the representation, in particular it had not produced evidence about why the transaction was structured in the way it was and how significant the tax position was in the eventual decision.

Links to our guides:

Tax Risk and HMRC's manuals
How the courts approach agent's reliance on the manuals

Grounds for Appeal: Legitimate Expectation
Useful cases and examples on this topic

How to appeal a decision of HMRC
Key steps in appealing a decision of HMRC.

External link:

Aozora GMAC v HMRC [2019] EWCA Cin 1643