by Jason Gorringe, Tax-News.com, London
12 February 2019
The UK’s Court of Appeal has ruled that HM Revenue and Customs acted lawfully when issuing a request to a British expat in Dubai for documents concerning his tax affairs.
The notice required the taxpayer to furnish information or documents to help the UK tax agency determine his tax status, with fines potentially applicable should he fail to comply.
Previously, the UK’s High Court of Justice ruled in favor of the taxpayer, Tony Michael Jiminez, the former co-owner of Charlton Athletic Football Club, in a ruling in October 2017.
The case concerns the limits to HMRC’s powers of investigating the affairs of UK expats and non-resident persons who have cut ties with the UK. In Tony Michael Jimenez v. HMRC ( EWHC 2585), the High Court provided a ruling on how HMRC should conduct itself in matters relating to non-UK individuals, recognizing that once a person leaves the UK, the degree to which HMRC can inquire into their tax affairs is much reduced.
Jimenez, the claimant, was represented by Steve Thomas of Excello Law, Rory Mullan of Counsel, and Gary Brothers of Independent Tax. Commenting on that October 20 ruling, Thomas said the ruling is “a game changer for the powers vested in HMRC” and “will also greatly interest non-domiciled residents who have made their permanent domicile outside the UK.” HMRC will no longer be able to examine their UK tax affairs, he said.
Thomas explained that Jimenez, who had left the UK in 2002, had cooperated with HMRC’s questioning about his residence status but the agency had tried to force matters by issuing him with a production notice at his Dubai residence. As a non-UK taxpayer, who lives outside the UK and has done so for many years, Jimenez challenged HMRC’s right to issue a production notice to his house in Dubai, Thomas explained, and eventually he decided to bring the case for judicial review in London.
According to Thomas, the key dispute was the degree to which HMRC can exercise its powers outside the UK. Jimenez’s case centered on powers accorded to HMRC to issue notices under Schedule 36 to the Finance Act 2008 (Schedule 36), which the claimant’s legal team argued do not “extend to subvert the sovereignty of foreign states;” as a general rule, countries will not assist other countries to collect tax unless they have a reciprocal arrangement.
In the latest ruling in favor of HMRC, Justice Leggatt stated: “[…] I do not accept that sending a notice by post to a person in a foreign state requiring him to produce information that is reasonably required for the purpose of checking his tax position in the UK violates the principle of state sovereignty […].” He said “Schedule 36 is intended to have the widest territorial reach that is consistent with international law.”
Later, he continued: “It is a well-established principle, reflected in the domestic authority of Government of India v Taylor  AC 491, that a state is not entitled to enforce its penal, revenue, or other public laws in a foreign country. But that does not prevent the state from taking measures to enforce a financial penalty against assets of the debtor situated within its own territorial jurisdiction or against the debtor personally if he enters its territory.”
The Justice therefore “reject the contention that giving a taxpayer notice to a person who is abroad offends the sovereignty of the state in which that person is located.”
Instead, the Court accepted HMRC’s contention, that the service of a taxpayer’s notice on the respondent in the UAE did not involve a breach of international law because it did not require the performance of any official act in that territory.