In R (oao Jimenez) v HMRC  EWCA Civ 51, the Court of Appeal held that HMRC can issue a taxpayer notice to a UK national resident in Dubai. In doing so, it has added to the revenue’s armoury in the battle against tax evasion, aligning the global reach of its information-gathering powers with those of the Serious Fraud Office. Whilst enforcement abroad will be difficult, there is a sting in the tail, at least as far as assets held in the UK are concerned.
Mr Jimenez was a UK national living in the UAE. In 2016, Her Majesty’s Revenue and Customs (“HMRC”) sent a taxpayer notice (under paragraph 1, schedule 36, Finance Act 2008 “schedule 36”) to his Dubai address, asking for details of his bank accounts and a schedule of his visits to the UK during an earlier tax period.
Mr Jimenez applied for judicial review and the Administrative Court held that HMRC’s powers to issue a taxpayer notice could not be exercised extra-territorially. On appeal, the Court of Appeal disagreed. It held that there was no express provision in schedule 36 limiting its territorial effect. A taxpayer notice can only be given to someone who is or may be a UK taxpayer and it is this status rather than his place of residence which is key to availability and operation of the power.
There are two strands to the Court of Appeal’s decision.
First, the key to the proper operation of the self-assessment system in the UK was reliance on HMRC’s ability to investigate the correctness of such an assessment. Schedule 36 provides the mechanism for this investigation, with the service of an information notice.
Secondly, the Court held that this approach was “bolstered” by the language of schedule 36, which included no express or overt restriction on its geographical reach. There would need to be a strong policy reason in the form of a relevant principle of international law for the power to issue a taxpayer notice to be construed as having no extraterritorial application. No such principle existed. The power to issue an information notice was an example of “prescriptive jurisdiction” (issuing binding rules or instructions) and not “enforcement jurisdiction” (coercive action to enforce rules, which may involve positive action in the jurisdiction of another state).
The backdrop to this decision is the Government’s heightened battle against tax crime. HMRC announced that in 2018 over 1,000 individuals were charged with criminal offences, almost 650 years’ worth of custodial sentences were imposed and over £5bn of tax revenue was restrained, forfeited or otherwise protected. However, to start proceedings, HMRC must be able to uncover irregularities in a taxpayer’s self-assessment in the first place. This is where the schedule 36 power is engaged.
The decision in Jimenez is a small advance for HMRC in this battle.
To enforce a taxpayer notice (or any related penalties) abroad will still require cooperation from the foreign state. This will, of course, take time and require political will on the part of the host country.
However, there is a sting in the tail of this decision. As noted in Jimenez by Lord Justice Legatt “there will in many cases be a real possibility that the taxpayer continues to hold assets within the jurisdiction which could be used to recover the civil penalties for non-compliance. Even if only enforceable domestically the civil penalties are likely in many cases to provide an incentive to comply with the notice.” Tax evaders, wherever they are, will need to watch out!