HMRC prepares an internal manual for its staff to help them with their duties in collecting and administering the tax system and these manuals are available online for all. A taxpayer, via a Big 4 accountancy practice, had used the guidance when determining whether to establish operations in the UK. The operations were the lending and investment of funds to a subsidiary in the US. Under the terms of the UK/US double tax treaty withholding taxes at 30% would be applied as the UK company didn’t carry on a trade, it was just an investment company. The taxpayer asked their Big 4 adviser whether unilateral relief would be available in the UK to credit the tax paid in the US against the tax liability of the UK company. The Big 4 adviser reviewed the HMRC guidance and advised his client that unilateral relief would be available.
It later transpired that the publicly available guidance given by HMRC was incorrect and that unilateral relief was not available in the taxpayer’s situation resulting in substantial amounts of extra tax becoming payable. HMRC then sought to collect this extra tax and the taxpayer appealed. The case ended up at the Court of Appeal (CoA) after judicial review.
The CoA has held that the guidance issued by HMRC was a representation and that public bodies, such as HMRC, should abide by their representations. But, even though it was unfair for HMRC to collect the tax now due the degree of unfairness was not great enough to stop this tax collection. The guidance issued by HMRC was only their opinion of the law and the fact the taxpayer had sought professional advice meant that they expected the tax adviser to determine whether HMRC’s opinion of the law was valid. The taxpayer could also not demonstrate that they would have used another jurisdiction for investment into the US had they know unilateral relief was unavailable.
The decision can be found at: Aozora GMAC Investment Ltd, R (On the Application Of) v Revenue And Customs [2019] EWCA Civ 1643 (08 October 2019) (bailii.org)
This is a useful case for determining how much reliance to place on HMRC guidance. The courts when deciding on similar cases consider a hypothetical taxpayer to be an ‘ordinary sophisticated taxpayer’ though HMRC should of course not depart from its issued guidance. This is a high expectation of ordinary people and can explain the many accountants and tax advisors in existence. The case further highlights that advisers are expected to treat HMRC’s guidance on its opinion of the law carefully and to come to their own determinations on what the law means in given circumstances. Please contact us if you have any questions relating to tax, international or otherwise. We will be able to review you situation and determine the law, in our opinion, as it applies to your situation.
