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24 January 2001
Tax Case - Representing the Board
The court determines whether proper authorisation was made in respect of the issue of a section 20 notice in R v Special Commissioner of Tax, ex parte Commissioners of Inland Revenue; R v Commissioners of Inland Revenue, ex parte Ulster Bank Ltd.
The court determines whether proper authorisation was made in respect of the issue of a section 20 notice in R v Special Commissioner of Tax, ex parte Commissioners of Inland Revenue; R v Commissioners of Inland Revenue, ex parte Ulster Bank Ltd.
Tax Case - Representing the Board
The court determines whether proper authorisation was made in respect of the issue of a section 20 notice in R v Special Commissioner of Tax, ex parte Commissioners of Inland Revenue; R v Commissioners of Inland Revenue, ex parte Ulster Bank Ltd.
The Inland Revenue sought information about unnamed taxpayers whose transactions were passed through sundry parties' accounts of the Ulster Bank by the issue of notices under section 20(a), Taxes Management Act 1970. An application was supported by the oral authorisation of the then director of Special Compliance Office and it was held that this was sufficient for the purposes of section 20(8A) and accordingly the original application had been authorised by order of the Board.
The background and facts
At each of its branches Ulster Bank Ltd operated, as part of its internal accounting mechanism, sundry parties' accounts which record transactions which were not or could not be dealt with through specific named accounts. The Inland Revenue had sought information about taxpayers whose transactions were passed through these accounts by serving notices under section 20 in relation to six named branches requiring Ulster Bank to produce certain documents. These notices were challenged in judicial review proceedings, which were eventually settled on the basis that the Revenue agreed not to serve more than one new notice on Ulster Bank in relation to the other branches and offices of Ulster Bank and it would not apply to the Special Commissioner for consent to serve such a notice later than 31 March 1999.
Subsequently in March 1999 an Inspector of Taxes applied to a Special Commissioner under section 20(8A), Taxes Management Act 1970 for consent to issue a notice on the bank under section 20(3) without naming the taxpayer to whom the notice related.
This application was made pursuant to oral authorisation given by Frank Brannigan, an officer of the Board of Inland Revenue, who had been authorised by the Board to exercise the Board's functions under section 20(8A).
The Special Commissioner refused to consent to the application on the grounds that the condition in section 20(8A) that the Inspector's application was to be 'authorised by order of the Board' meant that the Board itself had to give the necessary authorisation and not an officer exercising the Board's delegated authority. He would, however, have granted his consent if, in his view, the application had been authorised by the Board.
Six weeks later the Board issued a written order authorising the Inspector to make the application and wrote to the Special Commissioner enclosing the order and stating that the application was the same in all respects as 'the previous application dated 18 March 1999 save for the attached order'. On the following day the Special Commissioner gave his consent to the giving of the notice.
The Inland Revenue sought judicial review of the Special Commissioner's original decision not to consent to the original application of the Inspector of Taxes. Ulster Bank Ltd applied for judicial review of his subsequent decision consenting to the application.
The following were the points at issue:
(1) Whether the Commissioner was right that an application under section 20(8A) had to be authorised by the Board itself.
(2) Whether, if authorisation could be given by the Board's delegate, there was an 'order' on the facts of the instant case.
(3) Whether, if the first two issues were determined in favour of the Revenue, the Revenue should be granted a declaration that the Special Commissioner ought not to have refused his consent to the March application.
(4) If the first or second issues were not determined in favour of the Revenue, whether the May application was a fresh application, and therefore in violation of the new notice agreement, in which the Commissioner's consent should not have been given, or merely a continuation of the application made on 18 March 1999.
(David Goldberg QC and Clive Lewis for Ulster Bank Ltd; Timothy Brennan for the Crown.)
The High Court judgment
The matter came before Mr Justice Dyson. He rehearsed the facts of the case and the background to the applications made by the Inland Revenue. The Revenue had not suggested that Ulster Bank Ltd had been complicit in a tax fraud. It was of the opinion, however, that sundry parties' accounts had been used by individuals for the purpose of serious fraud. The investigation which was the subject of these proceedings therefore had the aim of unravelling those frauds.
The judge then went on to consider the relevant statutory provisions of section 20, Taxes Management Act 1970. The important subparagraph is section 20(8A), which relates to notices issued under section 20(3) and reads as follows:
'If, on an application made by an Inspector and authorised by order of the Board, a Special Commissioner gives his consent, the Inspector may give such a notice as is mentioned in subsection (3) above but without naming the taxpayer to whom the notice relates; but such a consent shall not be given unless the Special Commissioner is satisfied –
'(a) that the notice relates to a taxpayer whose identity is not known to the Inspector or to a class of taxpayers whose individual identities are not so known;
'(b) that there are reasonable grounds for believing that the taxpayer or any of the class of taxpayers to whom the notice relates may have failed or may fail to comply with any provision of the Taxes Acts;
'(c) that any such failure is likely to have led or to lead to serious prejudice to the proper assessment or collection of tax; and
'(d) that the information which is likely to be contained in the documents to which the notice relates is not readily available from another source.'
The other important statutory provision is a very old one and concerns section 4(a), Inland Revenue Regulation Act 1890 which provides that: 'any function conferred by or under any enactment, including any future enactment, on the Commissioners may be exercised by any officer of the Commissioners acting under their authority'.
Ulster Bank Ltd had contended, inter alia, that section 20(8A) impliedly excluded or disapplied section 4A, Inland Revenue Regulation Act 1890 in relation to the giving of notices under section 20(3), Taxes Management Act 1970 as references to the 'Board' in section 20 had to mean 'the Board acting by itself' and not 'the Board acting by itself or by its authorised officers', otherwise it would be possible for the Board to authorise any officer, however junior, to exercise a power under section 20 which Parliament had restricted to the Board.
Additionally the bank contended that the function conferred on the Board which could be delegated was 'to authorise' but the particular form which the authorisation had to take was 'by order of the Board' and the only body capable of so doing was the Board itself.
Finally the bank submitted that to construe section 20(8A) as not permitting delegation was consistent with its nature and purpose which was to ensure that its intrusive powers were properly exercised and that the subsection required some formal executive act which ordered or directed or instructed that something be done and that the order had to be in writing and capable of being published.
The judge therefore had to decide a number of issues, the first of which was could the Board delegate its section 20(8A) function of authorisation to Mr Brannigan, director of Special Compliance Office? The judge could not accept the submission of counsel for the bank that wherever the words 'the Board' appeared in section 20, they meant 'the Board acting by itself' and that the use of those words alone, in the context of section 20, impliedly excluded section 4A. The judge therefore accepted that it was possible for the Board to delegate some of its other important and intrusive powers to junior officers. In theory, although the notice under section 20(8A) must be given by an Inspector, the Board's authorisation could be given by someone of lower rank than an Inspector.
However, it was almost inconceivable that the Board would exercise its powers of delegation in such a manner. The Board is a public body, answerable to public law challenges and decisions taken by it in bad faith could be quashed (see Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223).
Mr Justice Dyson also determined that he did not accept that the Board could not delegate the function of authorising under section 20(8A) to Mr Brannigan because Mr Brannigan could not authorise 'by order of the Board'. Section 20(8A) merely describes the method by which, and the level at which, the function of authorising applications by Inspectors is required to be made. The section 20(8A) power is not the most intrusive or draconian power created by section 20, which accolade must surely go to section 20C, which gives the Inland Revenue the power to enter premises, if necessary by force. It is significant that this is the only power in respect of which Parliament has expressly disapplied section 4A, Inland Revenue Regulation Act 1890.
The second issue which Mr Justice Dyson had to determine was whether there was an authorisation by Mr Brannigan in the particular case. Counsel for Ulster Bank accepted that Mr Brannigan had orally authorised the making of the original application. Read in the context in which they appear, in the view of the judge the words 'by order of the Board' were not intended to be prescriptive or directory.
His view was, however, that in the context of section 20(8A), an order of the Board is not an order or instruction by the Board to an Inspector to make an application to the Special Commissioner. He therefore stated that if he was right as to what 'by order of' means, it must therefore follow that since the application in this case was authorised orally by Mr Brannigan under the authority of the Board, the application was 'authorised by order of the Board'.
The judge then had to decide what remedy was appropriate. It was common ground that if he decided the first two issues in favour of the Inland Revenue he should grant the Revenue a declaration that the Special Commissioner ought not to have refused his consent to the original application. In the view of the judge it would be quite wrong to make any order which would permit the matter to be remitted to the Special Commissioner for him to reconsider the matter from scratch and reach a decision in the light of the current circumstances. In the view of the judge the Revenue was entitled to a declaration that it was and remained entitled to the consent of the Special Commissioner to the issue of the notice.
Finally Mr Justice Dyson had to consider whether the application made in May 1999 was a fresh application but in view of his decisions on the first and second issues that issue did not arise. However, the judge briefly expressed his conclusions on it to the effect that it was plainly a fresh application following the refusal of consent pursuant to the first application. Accordingly if Mr Justice Dyson had held that the Special Commissioner was right to withhold his consent to the application of 14 March 1999, the judge would have held that it was not open for him to give his consent to the application of 19 May 1999, because that was a fresh application made after 31 March 1999 and was in breach of the notice agreement made between the parties. Accordingly the result was that the Revenue succeeded on the first two issues and was entitled to a declaration that it was and is entitled to the consent of the Special Commissioner under section 20(8A), Taxes Management Act 1970 to the giving of a notice to Ulster Bank Ltd, with approval under section 20B(6) to the exclusion of the restriction of the time limits in section 20(B5), Taxes Management Act 1970.
The applications by the Inland Revenue were granted
(Reported at [2000] STC 537.)
Commentary by John T Newth FCA, FTII, FIIT, ATT
This case forms part of a series of cases currently before the courts concerning Inland Revenue information powers. Current proceedings are of course affected by the new legislation in section 20BA, Taxes Management Act 1970.
There is a continuing tension between the authorities and taxpayers on this issue. The Inland Revenue Special Compliance Office is targeting the activities of serious fraudsters and in this respect wishes to make detailed investigation of bank accounts which it suspects are being used by such financial criminals.
It is not inconceivable that such accounts could form part of moneylaundering operations, in which case the banks should be considering their position very carefully.
On the other side of the fence the disruption caused to a major bank by a request for information regarding sundry parties' accounts must be quite enormous, and the work involved by bank staff very significant indeed – quite apart from the costs involved to the bank, which is not itself accused of any tax offence at all.
It is these two conflicting positions which have brought matters before the courts in recent years, as evidenced in the Northern Bank case and the current judicial review application.
Further cases on this subject will be reported in full in due course, in particular the Banque Internationale a Luxembourg SA case and Morgan Grenfell, where of course legal professional privilege was also an issue.
The court determines whether proper authorisation was made in respect of the issue of a section 20 notice in R v Special Commissioner of Tax, ex parte Commissioners of Inland Revenue; R v Commissioners of Inland Revenue, ex parte Ulster Bank Ltd.
The Inland Revenue sought information about unnamed taxpayers whose transactions were passed through sundry parties' accounts of the Ulster Bank by the issue of notices under section 20(a), Taxes Management Act 1970. An application was supported by the oral authorisation of the then director of Special Compliance Office and it was held that this was sufficient for the purposes of section 20(8A) and accordingly the original application had been authorised by order of the Board.
The background and facts
At each of its branches Ulster Bank Ltd operated, as part of its internal accounting mechanism, sundry parties' accounts which record transactions which were not or could not be dealt with through specific named accounts. The Inland Revenue had sought information about taxpayers whose transactions were passed through these accounts by serving notices under section 20 in relation to six named branches requiring Ulster Bank to produce certain documents. These notices were challenged in judicial review proceedings, which were eventually settled on the basis that the Revenue agreed not to serve more than one new notice on Ulster Bank in relation to the other branches and offices of Ulster Bank and it would not apply to the Special Commissioner for consent to serve such a notice later than 31 March 1999.
Subsequently in March 1999 an Inspector of Taxes applied to a Special Commissioner under section 20(8A), Taxes Management Act 1970 for consent to issue a notice on the bank under section 20(3) without naming the taxpayer to whom the notice related.
This application was made pursuant to oral authorisation given by Frank Brannigan, an officer of the Board of Inland Revenue, who had been authorised by the Board to exercise the Board's functions under section 20(8A).
The Special Commissioner refused to consent to the application on the grounds that the condition in section 20(8A) that the Inspector's application was to be 'authorised by order of the Board' meant that the Board itself had to give the necessary authorisation and not an officer exercising the Board's delegated authority. He would, however, have granted his consent if, in his view, the application had been authorised by the Board.
Six weeks later the Board issued a written order authorising the Inspector to make the application and wrote to the Special Commissioner enclosing the order and stating that the application was the same in all respects as 'the previous application dated 18 March 1999 save for the attached order'. On the following day the Special Commissioner gave his consent to the giving of the notice.
The Inland Revenue sought judicial review of the Special Commissioner's original decision not to consent to the original application of the Inspector of Taxes. Ulster Bank Ltd applied for judicial review of his subsequent decision consenting to the application.
The following were the points at issue:
(1) Whether the Commissioner was right that an application under section 20(8A) had to be authorised by the Board itself.
(2) Whether, if authorisation could be given by the Board's delegate, there was an 'order' on the facts of the instant case.
(3) Whether, if the first two issues were determined in favour of the Revenue, the Revenue should be granted a declaration that the Special Commissioner ought not to have refused his consent to the March application.
(4) If the first or second issues were not determined in favour of the Revenue, whether the May application was a fresh application, and therefore in violation of the new notice agreement, in which the Commissioner's consent should not have been given, or merely a continuation of the application made on 18 March 1999.
(David Goldberg QC and Clive Lewis for Ulster Bank Ltd; Timothy Brennan for the Crown.)
The High Court judgment
The matter came before Mr Justice Dyson. He rehearsed the facts of the case and the background to the applications made by the Inland Revenue. The Revenue had not suggested that Ulster Bank Ltd had been complicit in a tax fraud. It was of the opinion, however, that sundry parties' accounts had been used by individuals for the purpose of serious fraud. The investigation which was the subject of these proceedings therefore had the aim of unravelling those frauds.
The judge then went on to consider the relevant statutory provisions of section 20, Taxes Management Act 1970. The important subparagraph is section 20(8A), which relates to notices issued under section 20(3) and reads as follows:
'If, on an application made by an Inspector and authorised by order of the Board, a Special Commissioner gives his consent, the Inspector may give such a notice as is mentioned in subsection (3) above but without naming the taxpayer to whom the notice relates; but such a consent shall not be given unless the Special Commissioner is satisfied –
'(a) that the notice relates to a taxpayer whose identity is not known to the Inspector or to a class of taxpayers whose individual identities are not so known;
'(b) that there are reasonable grounds for believing that the taxpayer or any of the class of taxpayers to whom the notice relates may have failed or may fail to comply with any provision of the Taxes Acts;
'(c) that any such failure is likely to have led or to lead to serious prejudice to the proper assessment or collection of tax; and
'(d) that the information which is likely to be contained in the documents to which the notice relates is not readily available from another source.'
The other important statutory provision is a very old one and concerns section 4(a), Inland Revenue Regulation Act 1890 which provides that: 'any function conferred by or under any enactment, including any future enactment, on the Commissioners may be exercised by any officer of the Commissioners acting under their authority'.
Ulster Bank Ltd had contended, inter alia, that section 20(8A) impliedly excluded or disapplied section 4A, Inland Revenue Regulation Act 1890 in relation to the giving of notices under section 20(3), Taxes Management Act 1970 as references to the 'Board' in section 20 had to mean 'the Board acting by itself' and not 'the Board acting by itself or by its authorised officers', otherwise it would be possible for the Board to authorise any officer, however junior, to exercise a power under section 20 which Parliament had restricted to the Board.
Additionally the bank contended that the function conferred on the Board which could be delegated was 'to authorise' but the particular form which the authorisation had to take was 'by order of the Board' and the only body capable of so doing was the Board itself.
Finally the bank submitted that to construe section 20(8A) as not permitting delegation was consistent with its nature and purpose which was to ensure that its intrusive powers were properly exercised and that the subsection required some formal executive act which ordered or directed or instructed that something be done and that the order had to be in writing and capable of being published.
The judge therefore had to decide a number of issues, the first of which was could the Board delegate its section 20(8A) function of authorisation to Mr Brannigan, director of Special Compliance Office? The judge could not accept the submission of counsel for the bank that wherever the words 'the Board' appeared in section 20, they meant 'the Board acting by itself' and that the use of those words alone, in the context of section 20, impliedly excluded section 4A. The judge therefore accepted that it was possible for the Board to delegate some of its other important and intrusive powers to junior officers. In theory, although the notice under section 20(8A) must be given by an Inspector, the Board's authorisation could be given by someone of lower rank than an Inspector.
However, it was almost inconceivable that the Board would exercise its powers of delegation in such a manner. The Board is a public body, answerable to public law challenges and decisions taken by it in bad faith could be quashed (see Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223).
Mr Justice Dyson also determined that he did not accept that the Board could not delegate the function of authorising under section 20(8A) to Mr Brannigan because Mr Brannigan could not authorise 'by order of the Board'. Section 20(8A) merely describes the method by which, and the level at which, the function of authorising applications by Inspectors is required to be made. The section 20(8A) power is not the most intrusive or draconian power created by section 20, which accolade must surely go to section 20C, which gives the Inland Revenue the power to enter premises, if necessary by force. It is significant that this is the only power in respect of which Parliament has expressly disapplied section 4A, Inland Revenue Regulation Act 1890.
The second issue which Mr Justice Dyson had to determine was whether there was an authorisation by Mr Brannigan in the particular case. Counsel for Ulster Bank accepted that Mr Brannigan had orally authorised the making of the original application. Read in the context in which they appear, in the view of the judge the words 'by order of the Board' were not intended to be prescriptive or directory.
His view was, however, that in the context of section 20(8A), an order of the Board is not an order or instruction by the Board to an Inspector to make an application to the Special Commissioner. He therefore stated that if he was right as to what 'by order of' means, it must therefore follow that since the application in this case was authorised orally by Mr Brannigan under the authority of the Board, the application was 'authorised by order of the Board'.
The judge then had to decide what remedy was appropriate. It was common ground that if he decided the first two issues in favour of the Inland Revenue he should grant the Revenue a declaration that the Special Commissioner ought not to have refused his consent to the original application. In the view of the judge it would be quite wrong to make any order which would permit the matter to be remitted to the Special Commissioner for him to reconsider the matter from scratch and reach a decision in the light of the current circumstances. In the view of the judge the Revenue was entitled to a declaration that it was and remained entitled to the consent of the Special Commissioner to the issue of the notice.
Finally Mr Justice Dyson had to consider whether the application made in May 1999 was a fresh application but in view of his decisions on the first and second issues that issue did not arise. However, the judge briefly expressed his conclusions on it to the effect that it was plainly a fresh application following the refusal of consent pursuant to the first application. Accordingly if Mr Justice Dyson had held that the Special Commissioner was right to withhold his consent to the application of 14 March 1999, the judge would have held that it was not open for him to give his consent to the application of 19 May 1999, because that was a fresh application made after 31 March 1999 and was in breach of the notice agreement made between the parties. Accordingly the result was that the Revenue succeeded on the first two issues and was entitled to a declaration that it was and is entitled to the consent of the Special Commissioner under section 20(8A), Taxes Management Act 1970 to the giving of a notice to Ulster Bank Ltd, with approval under section 20B(6) to the exclusion of the restriction of the time limits in section 20(B5), Taxes Management Act 1970.
The applications by the Inland Revenue were granted
(Reported at [2000] STC 537.)
Commentary by John T Newth FCA, FTII, FIIT, ATT
This case forms part of a series of cases currently before the courts concerning Inland Revenue information powers. Current proceedings are of course affected by the new legislation in section 20BA, Taxes Management Act 1970.
There is a continuing tension between the authorities and taxpayers on this issue. The Inland Revenue Special Compliance Office is targeting the activities of serious fraudsters and in this respect wishes to make detailed investigation of bank accounts which it suspects are being used by such financial criminals.
It is not inconceivable that such accounts could form part of moneylaundering operations, in which case the banks should be considering their position very carefully.
On the other side of the fence the disruption caused to a major bank by a request for information regarding sundry parties' accounts must be quite enormous, and the work involved by bank staff very significant indeed – quite apart from the costs involved to the bank, which is not itself accused of any tax offence at all.
It is these two conflicting positions which have brought matters before the courts in recent years, as evidenced in the Northern Bank case and the current judicial review application.
Further cases on this subject will be reported in full in due course, in particular the Banque Internationale a Luxembourg SA case and Morgan Grenfell, where of course legal professional privilege was also an issue.
