R v. FTT – English Court of Appeal upholds the validity of documentary demands made by HMRC on UK companies at Australia's instigation

The Australian Tax Office, which suspected that a UK accounting firm was providing nominee directors and shareholders to UK-incorporated companies masquerading as factually resident outside Australia, made a request to the UK Revenue (HMRC) pursuant to Art. 27 of the UK-Australia Treaty (somewhat similar to Art. 24 of the Canada-U.K. Treaty). HMRC, in turn (following permission granted in a First Tier Tribunal hearing) sent demands for documents, respecting these services of the accounting firm and the movement of funds, to the accounting firm and three banks under a gentler and fairer U.K version of ITA s. 231.2.

In rejecting arguments that the various companies named in these demands had to be told prior to the FTT hearing who the taxpayers being investigated were and why the documents were reasonably required to establish the taxpayers' tax position, Sir Terence Etherton stated:

The purpose of the statutory scheme is to assist HMRC at the investigatory stage to obtain documents and information without providing an opportunity for those involved in potentially fraudulent...arrangements to delay or frustrate the investigation by lengthy or complex adversarial proceedings.... [I]n many cases disclosure of… strategy and of sources of information to the taxpayer or those associated with the taxpayer may endanger the investigation by forewarning them.

Neal Armstrong. Summary of R v. FTT, [2016] BTC 10 (CA) under s. 231.2(3).