A First Tier Tribunal recently considered this in the case of Syngenta Holdings Ltd v HMRC,  UKFTT 236, in relation to HMRC’s request for disclosure of a number of categories of information, include a request that “the emails to [five named individuals] for the period of two years leading up to the approval of the loan by SHL be searched for relevant documents employing search terms to be agreed between the parties”.
The case concerned a loan made by a group Dutch group treasury company to a UK company, in order for it to acquire another UK group company as part of a group reorganisation. The point at issue was whether the loan relationship had an unallowable purpose, s441 CTA 2009.
“All email” requests from HMRC are not uncommon. We have seen such requests in a situation where the point at issue was a point of legal construction of a contract, and emails between the parties before the contract would not have been relevant. In this case, where the company’s purpose was in point, emails could have been relevant.
The taxpayer’s argument was that this very broad request was unreasonable. The loan was made in January 2011, and the company applied for an Advance Thin Capitalisation Agreement in March 2011 which was granted in February 2012. HMRC then opened an enquiry into the 2011 accounting period and all subsequent ones, and asked for extensive information, including all internal emails in relation to the transactions. The taxpayer provided a full response. It later instructed a law firm to prepare a full fact-finding report. For 3 years after that report was submitted, appropriate specialist officers in HMRC considered the information, held meetings and corresponded with the taxpayer, before issuing closure notices denying deductions for any of the interest, without requesting any further information. When the taxpayer appealed the notices, HMRC issued the request for substantial amounts of additional information, for a period which at this point started more than 10 years earlier.
The tribunal judge considered the request, and held
a) That in relation to one individual HMRC had not shown that his involvement was more than peripheral, and rejected the request for his emails
b) That where the named individuals were employees of non-UK group companies and no longer worked for the group, their emails are not within the UK company’s possession or power, and rejected the request for these emails
c) That if he was wrong about point b), it is reasonable and proportionate to search the emails for a period of 2 months leading up to the board meeting at which the UK company agreed to enter into the loan.
The judge also restricted the request for all draft board minutes of the board meeting, to cover drafts for the 2 month period prior to the meeting. He also said “HMRC appear to have been suspicious that minutes were prepared before the meeting took place, but that is commonplace, and I see nothing whatsoever suspicious about it.”
The judge also went through requests for information from the two firms of tax advisers. He rejected the application for disclosure of the fee discussions between Syngenta and the tax advisers, which HMRC’s Counsel said may be relevant if the fees relate to tax advice. The judge said there was no doubt that tax was considered prior to the transactions, but rejected the application. HMRC appear to have asked for engagement letters and fee discussions in the hope that the advisers had made claims about tax savings.
The judge said, in relation to the emails, “I think the presumption must be that in the absence of any evidence to the contrary, disclosure by SHL has been carried out diligently and honestly. However, people’s memory is fallible, and even with the best will in the world, they might not remember events which took place some years ago.”
Although the information request was significantly reduced, the fact it was allowed in part is surprising as no further information had been requested by HMRC for three years following the submission of a detailed report. We are seeing similar patterns in other cases with very long delays in HMRC replying to detailed correspondence, followed by requests for considerable amounts of new information.
While the judge held that HMRC could request further information despite the co-operation of the taxpayer over a long period, the delay does seem to have contributed to his careful consideration of the correctness and proportionality of HMRC’s requests.
HMRC often make broad requests for email traffic in other situations where evidence of purpose is critical to the tax analysis, such as the motive defence for the transfer of assets abroad legislation. We have also seen onerous information requests in correspondence on a pure technical point without proper justification of their relevance, with the threat of serving third-party information notices. A taxpayer whose position is strong may feel that such requests are designed to make the costs of disagreeing with HMRC too onerous.
The key issues that often arise when dealing with HMRC information requests include the following;
a) Is the information relevant to the return that HMRC is enquiring into?
b) Is the information relevant to the technical point being considered? (Is there a purpose or motive test or is the request in relation to a factual legal point?)
c) Has the officer explained what the point in question is, or is he requesting the accounts of, for example, an offshore company not involved in the transaction being discussed, to see if it sparks any further questions?
d) Is the information within the possession or power of the taxpayer?
e) Is the information actually relevant to the point at issue or is it either peripheral, or obvious? (e.g. here it was obvious that the taxpayer took tax advice so there was no reason to disclose fee discussions).
f) Is the work to provide the information proportionate in the light of the overall progress of the enquiry?
We are often asked to advise on long-running enquiries to bring a new perspective and reach a positive resolution; our team has a wealth of experience in enquiry and tax investigations work in both HMRC and the Big 4.
If you would like to discuss any of these issues or enquiries and tax investigations more generally, please contact us