Jimenez - Court of Appeal confirms extra-territorial reach of information notices

In R (oao Jimenez) v HMRC [2019] EWCA Civ 51, the Court of Appeal has confirmed that HMRC can issue an information notice to a taxpayer under paragraph 1, Schedule 36, Finance Act 2008 (FA 2008), even if he is non-resident.

Background

Mr Jimenez (the taxpayer) is a UK national who is resident in Dubai. On 18 May 2016, HMRC issued to the taxpayer a notice under paragraph 1,  Schedule 36, FA 2008 (the Information Notice), requiring him to provide bank details and a record of his visits to the UK between 2004 and 2013 . The Information Notice was directed to the taxpayer's address in Dubai.

The Information Notice had been approved by the First-tier Tribunal (FTT) following a without notice application by HMRC. The FTT considered that HMRC was justified in issuing the Information Notice and that the information requested was reasonably required to enable HMRC to investigate the taxpayer's domestic affairs. As the Information Notice had been approved by the FTT, the taxpayer had no right of appeal. 

The taxpayer issued judicial review proceedings in the High Court  challenging the FTT's decision to approve the Information Notice.  

High Court judgment

The judicial review claim was successful and the Information Notice was quashed.   

The taxpayer argued that HMRC's information gathering powers do not have extra-territorial effect, such that, as he was resident outside the UK, he could not be subject to the Information Notice. 

HMRC contended that it had the power to issue an information notice to any non-resident UK taxpayer to assist it in establishing that person's UK tax position and there was no territorial limit on such power.  

The High Court held that, absent any specific territorial provisions, the general principles of statutory interpretation were to be applied. Schedule 36, FA 2008, was silent on territorial provisions and HMRC's information powers were therefore limited to the UK.

Our previous blog on the High Court's decision can be viewed here.

HMRC appealed to the Court of Appeal. 

Court of Appeal judgment 

The appeal was allowed. 

The taxpayer contended that Schedule 36, FA 2008, must be construed by reference to international law. Parliament would not have conferred powers on HMRC which, when exercised, would be a breach of international law. Accordingly, HMRC did not have the power to enforce the Information Notice outside the UK. 

The Court of Appeal disagreed. In its view, the absence of territorial scope did not prevent particular legislation from being construed as having extra-territorial effect. The language of the statute and its purpose had to be considered in determining whether it had extra-territorial reach.

The Court also rejected the argument that HMRC could rely on mutual assistance arrangements to obtain information from a non-UK resident  taxpayer. In the view of the Court, the existence of mutual assistance arrangements did not limit the Information Notice to domestic application. Such arrangements provide additional assistance to HMRC to exercise their information powers overseas. It would require a strong policy reason, in the form of a relevant principle of international law, to construe paragraph 1 as having no extra-territorial application. 

In reaching its decision, the Court was heavily influenced by R (KBR Inc) v Director of the Serious Fraud Office [2018] EWHC 2368, in which the High Court decided that the SFO was entitled to serve a notice requiring a person to provide documents relevant to its investigation under section 2(3), Criminal Justice Act 1987, extra-territorially. This was because the relationship and payments between KBR's holding company and its UK subsidiaries were sufficient to establish a sufficient connection between the company and the jurisdiction. The need to investigate serious fraud provided sufficient public interest to justify section 2(3) being interpreted as having extra-territorial effect.

Similarly, in the instant case, the Court was of the view that there was a strong public interest in paragraph 1, Schedule 36, FA 2008, being construed as having extra-territorial effect. Applying Re Seagull Manufacturing Co Ltd [1993] CH 345 and Bilta (UK) Ltd v Nazir (No. 2) [2015] UKSC 23, the Court held that there was an obvious public interest in securing the purpose for which Parliament thought it necessary to confer the relevant powers on HMRC, namely, maintaining public revenue. 

Further, there was no express territorial restriction in paragraph 1 and the Court therefore concluded that the Information Notice did have extra-territorial effect. 

Comment 

This judgment will be welcomed by HMRC as it will enable it to issue information notices under paragraph 1, Schedule 36, FA 2008, to UK taxpayers living outside the UK.

Significantly, the Court of Appeal said it was clear that Parliament had not intended for the scope of each individual provision of Schedule 36 to be identical. There were some provisions in the legislation which, if given extra-territorial effect, would infringe international law. 

The application of extra-territoriality to paragraph 1 will not necessarily be applied to the whole of Schedule 36. It is to be hoped that, for example, should HMRC seek to enter premises outside the UK which are occupied by a UK taxpayer, the UK courts would consider such action to contravene state sovereignty and would not sanction it.

A copy of the judgment can be viewed here.