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Law Firm Fends Off HM Revenue and Customs Information Request

Law Firm Fends Off HM Revenue and Customs Information Request

Legal practices and other professional firms are obliged to keep client records by the Money Laundering Regulations 2007 (MLR) – but does that make them data-holders for the purposes of HM Revenue and Customs’ (HMRC’s) powers to demand information? In an important ruling, the First-tier Tribunal (FTT) has answered that question in the negative.

The case concerned a law firm that had been served by HMRC with a request for information concerning the beneficial ownership of offshore entities. The notice was served pursuant to data-gathering powers conferred on HMRC by Section 86 of the Finance Act 2011. Its validity, however, depended on whether the firm was properly viewed as a ‘relevant data-holder’. That issue, in turn, hinged on whether the firm could be said to ‘maintain a register’ of the information sought.

In upholding the firm’s challenge to the notice, the FTT found on the basis of the natural meaning of the phrase that maintaining a register must mean more than merely keeping or preserving records. All taxpayers are under a statutory obligation to keep records and, if HMRC’s broad interpretation of the phrase were correct, that would make every taxpayer a relevant data-holder.

The obligation on professional firms to keep copies of documents which show that due diligence has been carried out on clients with a view to detecting money laundering was an obligation to keep records, not to maintain a register. It followed that the firm’s record-keeping obligations under the MLR did not mean that it was a relevant data-holder within the meaning of the Act.