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  • Writer's pictureInchmead

IT company loses £167m diverted profits tax case

The Upper Tribunal has refused an application to force HMRC to disclose reasons for issuing charging notices related to a diverted profits tax bill for £167m


The appellants, Refinitiv Ltd & Ors, sought a judicial review against HMRC’s decision to issue charging notices (CNs) for diverted profits tax amounting to £167m related to intellectual property sold in 2018.


Financial data specialist Refinitiv argued that HMRC’s decision to issue these notices was an ‘abuse of power’ because it encroached on an advance pricing agreement (APA) that HMRC reached with them in 2012.


The agreement had set an arm’s length price for services the appellants provided for the period 2008-2014.


HMRC had opened enquiries into certain arrangements entered into between the subsidiaries in the context of diverted profits tax and issued the notices to the applicants under Schedule 36 of Finance Act 2008.


The Schedule 36 notices required the appellants to provide documents including tax advice about a group transformation project, known as Project Vista.

Refinitiv presented certain documents which were not disclosed to HMRC on the basis that they were subject to legal professional privilege, which protects certain confidential communications from disclosure without a client’s permission, even in court.


HMRC disputed this because it did not have ‘sufficient information’ to assess the validity of the legal professional privilege claim.


During the First Tier Tribunal (FTT), Refinitiv gave the disputed documents to the tribunal judge, but would not disclose them to HMRC.


It argued that the documents were subject to legal professional privilege as they constituted a ‘continuum of communications’ between the appellants and their client.


At the Upper Tribunal, the appellants sought an order that HMRC disclose all documents which contained evidence showing the reasons why it issued the charging notices.


HMRC had stated that the agreement had ‘no effect’ because it had expired before the period to which the charging notices related.


Refinitiv based the case for disclosure on the public law of duty of candour, with the need to be transparent and clear about the decision-making process and the reasons for the decision.


They emphasised the importance of these principles given their central argument in the judicial review that HMRC abused their power when deciding to issue the charging notices.


Addressing the judicial review, Judge Swami Raghavan said: ‘The parties offer competing views on this: whereas the claimants emphasise their case concerns an allegation of abuse of power and absolutely encompasses the decision-making process.


‘It is plain that the public law nature of the claim, and the particular allegation of abuse of power in that regard, is grounded in the fact of there having been an APA that was agreed between the claimants and the parties in the terms that it was. The claim does not revolve around whether HMRC abused its powers in a more general public law sense.’


The Upper Tribunal did not accept that the cases they relied on established a ‘general requirement’ on HMRC, irrespective of the kind of public law challenge that was being made.


Siobhan Duncan, tax barrister at Temple Tax Chambers, said: ‘A noteworthy aspect of the decision was that the public law nature of the claim, and the particular allegation of abuse of power in that regard, was grounded in the fact of there having been an APA that was agreed between the parties in the terms that it was.

‘The claim did not revolve around whether HMRC abused its powers in a more general public law sense. The case, therefore, pertained to a legal issue, ie, contrasting the need, on the one hand, to interpret how the APA and CN (DPT) regimes interact, and on the other hand, a public law challenge focused on the process of HMRC’s decision making.


‘The public law principles the taxpayers sought to rely on did not assist in this application. They did not operate to provide an independent basis for disclosure, where, as the Upper Tribunal concluded here, disclosure was not necessary for the fair and just disposal of the issues prevented.’

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