In a recent hearing in front of the UK tax tribunal, a tax payer (who was a settlor of an offshore trust) argued that documents requested from HMRC could not be produced because they were in the possession of the trustee and the trustee had refused to provide them.
HMRC had issued an information notice in the context of an enquiry into the tax payer’s tax affairs. Under UK law, a recipient of such a notice must produce all documents reasonably requested if they are in the recipient’s possession or power.
Evidence before the Court suggested that, although the taxpayer had written to the trustees asking them to produce such documents, the taxpayer had not explained why the documents were required or made a real effort to chase the trustees until prompted by the court a year later. When a negative response was finally received from the trustees, the taxpayer passively accepted the trustees’ refusal to produce the documents, even though there was no evidence to suggest that the taxpayer’s request for documents was not a reasonable one.
The Court considered it relevant that the taxpayer had the power to remove the trustees and historically the trustees had been responsive to requests from the settlor, the implication being that, if the taxpayer had made a serious effort, the documents probably would have been produced. The Court did not agree with the taxpayer’s contention that it was extremely limited in terms of the powers it possessed vis-à-vis the trustee and trust matters.
Ultimately, the Court concluded that it was not satisfied that documents were not in the taxpayer’s possession or power.
This case is a useful example of how the UK tax tribunal will apply HMRC information powers to obtain trust information and documents and gives useful guidance as to what steps a taxpayer will be expected to take to obtain such documents in response to an information notice. However, it should not be interpreted as reflecting a general principle that a settlor will always be in possession or control of trust documents; in this case the Court appears to have been influenced by this particular taxpayer’s lack of effort. Where taxpayers, despite their best efforts, fail to obtain trustees’ cooperation, the outcome may well be different.