Tax Avoidance Investigation Spans the Globe

In a telling example of tax avoidance investigations spanning the globe, the High Court has sanctioned the seizure of documents from a UK accountancy firm in connection with inquiries by the Australian Tax Office (ATO).

The ATO had requested the assistance of HM Revenue and Customs (HMRC) under the Double Tax Convention between the UK and Australia. The ATO was investigating a series of complex arrangements involving companies and other entities in the UK and elsewhere which were believed to be beneficially owned by Australian residents and used to avoid tax. The sum at stake was said to be tax on income of Australian Dollars 230 million.

In response to the ATO’s request, HMRC invoked investigatory powers under the Finance Act 2008 and sought disclosure of documents from the accountancy firm in respect of 24 companies. The firm was said to have provided nominee directors and shareholders for the companies which were believed to be involved in the tax avoidance arrangements.

In challenging the notices, the companies argued that it could not be lawful to direct the firm to hand over confidential business records in order to facilitate the investigation of the tax affairs of third parties. Only three of the companies had been categorised as ‘taxpayers’ themselves and the other 21 had not been provided with any reasons for the intended seizures, nor any opportunity to object.

In dismissing those complaints, however, the Court found that there had been no obligation on HMRC to give reasons to the 21 companies and that the summary reasons provided to the other three were ‘entirely adequate’. Arguments that the three companies had been given insufficient time to deal with the matter before the notices were approved by the First-tier Tribunal were also dismissed.

The companies also submitted that their privacy rights, enshrined in Article 8 of the European Convention on Human Rights, would be violated by the seizures. However, the Court concluded that the notices had been issued in pursuit of a legitimate aim and were ‘necessary in a democratic society for protecting the taxation system and the revenue’.