Supreme Court on the ‘Houdini Taxpayer’

UBS AG & Deutsche Bank v Revenue and Customs [2016] UKSC 13 (9 March 2016)

As infamously explained by jailed fraudster Tom Hayes, UBS must be credited with issuing a “handbook” on rigging LIBOR. Doubling Hayes up, in the ongoing LIBOR trial, Jonathan Mathew, one of five charged Barclays traders, says that he was merely following orders and just did what his boss taught/told him to do. The five men say everyone in the big banks “knew LIBOR was rigged”. As seen in an earlier post, along with Barclays traders, Deutsche Bank traders are facing criminal charges for EURIBOR manipulation and proceedings are ongoing in the case of R v Christian Bittar & Ors – first appearances were made at Westminster Magistrates’ Court on 11 January 2016 and a mention hearing was held on 18 March 2016. Former Deutsche trader Martyn Dodgson has also been convicted for insider trading in Operation Tabernula. In the instant case, echoing Templeman LJ in W T Ramsay Ltd v Inland Revenue Comrs [1979] 1 WLR 974, Lord Reed described UBS and Deutsche Bank’s behaviour as “the most sophisticated attempts of the Houdini taxpayer to escape from the manacles of tax.” The banks, which Lord King calls “the Achilles heel of capitalism”, may be disappointed with the Supreme Court’s ruling but most people will only be too delighted that top executives should become acquainted with some degree of retributive justice. The dry issue of tax is a hot political topic these days and the Panama Papers (see here) culminated in calls for the prime minister to resign for being a hypocrite.

Though this post is about the Supreme Court’s judgment, I use the opportunity to discursively expose other important tax issues reported in the media. Of course, Deutsche Bank announced last October that it would axe 9,000 full-time jobs and it has just recent lost its global position as a top-three investment bank. Research from Coalition, that ranks global investment banks by total revenue from fees and trading, shows that Citigroup and Bank of America are ahead of Deutsche Bank. JPMorgan Chase and Goldman Sachs retained their positions in first and second place respectively. Tim Wallace writes in today’s The Sunday Telegraph that once a cash cow, investment banking is now is serious crisis and jobs and pay across the sector has declined. It is a vicious cycle and the following insightful analogy is invoked “shrinking an investment bank is hard. It is like unravelling a jumper – once you start pulling on the thread it is hard to stop … then all of a sudden, you haven’t got a jumper at all.”

UK Supreme Court: Case Preview: WHA Ltd v Her Majesty’s Revenue and Customs

The case of WHA Limited and another (Appellants) v Her Majesty’s Revenue and Customs (Respondent, “HMRC”) UKSC 2009/0074 will be heard in the UK Supreme Court from 21 to 24 January 2013 and it shall be streamed online here. Lords Hope, Walker, Mance, Reed and Carnwath JJSC will hear the appeal.

Facts

WHA Limited (“WHA”) and Viscount Reinsurance Company Limited (“V”) are part of a group of companies providing motor breakdown insurance. V is the reinsurer, in effect standing in the shoes of the original insurer with whom the breakdown policies were taken out with. V contracts with WHA to handle the claims. WHA also contracts with garages to carry out repairs to vehicles. The garages invoice WHA the cost of the repairs. It was originally envisaged that WHA would treat the VAT added by the garages as input tax and not therefore charge it on to V.

The Court of Appeal, giving an interim judgment, held that this was not permissible and that WHA must charge V the VAT. However, V then passes this cost onto other companies within the group between which, due to geographical location, no VAT is due. Subject to adjourned consideration of arguments based on the doctrine of “abuse of rights”, Viscount was entitled to claim back the VAT from HMRC. This meant that the group of companies escaped paying VAT on the garage services.

The Court of Appeal’s subsequent judgment on the “abuse of rights” issue concluded that such a corporate structure was indeed such an abuse, as it held that its sole purpose was to avoid paying tax. In 2007, permission was granted to appeal to the House of Lords, whose role the Supreme Court has since assumed.

Legal Professional Privilege and Article 8: Prudential Case Live in UK Supreme Court: 5 November – 7 November 2012

Ever since its doors opened for business in October 2009, the UK Supreme Court has ruled on numerous cases related to article 8 of the European Convention on Human Rights. But the instant case is unique. In contrast to the family and private life limbs of article 8, R (on the application of Prudential plc and another) (Appellants) v Special Commissioner of Income Tax and another (Respondents) UKSC 2010/0215 turns on tax, accountancy, the legal profession and the right to respect for correspondence. Lords Neuberger, Hope, Walker, Mance, Clarke, Sumption and Reed JJSC will hear the matter from 5 November until 7 November 2012 (sittings commence on 11:00 AM Monday and 10:30 AM Tuesday – Thursday, Lunch Recess 1:00 – 2:00 PM,  Greenwich Mean Time). Please watch these proceedings live ONLINE HERE. The issue before the court is whether, at common law, legal professional privilege (“LPP”) applies to communications between a client and an accountant seeking and giving legal advice on tax law.

Crucially, LPP is an (almost) absolute rule. It not only entitles clients to refuse to disclose documents or answer questions, but also requires advisers and others to do the same. Hence LPP, which traces its roots to the sixteenth century, creates a real conflict with general public policy that cases should be decided by reference to all available relevant evidence. From Prudential’s perspective the Human Rights Act 1998, applying the ECHR, protects LPP and requires any limitation on LPP to be justified.

Because of the important nature of the case, the Law Society, the General Council of the Bar and the Institute of Chartered Accountants in England and Wales are intervening in the matter as are the Association Internationale pour la Protection de la Propriété Intellectuelle UK Group and the Legal Services Board.