Patel v Revenue & Customs (INCOME TAX/CORPORATION TAX : Other) [2018] UKFTT 561 (TC)
[35]“ Arguments for HMRC[36]Mr Lamb outlined the reasons why the information had been requested. The question was whether HMRC were justified in continuing to press for further information. HMRC contended that the officer, Mr Henry, had not been provided with sufficient documentary evidence or information to close the enquiry. In their view it was necessary to determine whether Estate 4, through its director Alessandro Crivelli, made day to day decisions on behalf of FCI and thereby acted as the permanent establishment through which FCI traded in the UK. HMRC also considered that the relationship between Alessandro Crivelli and FCI needed to be explored further. Mr Lamb referred to Gould, in which the Special Commissioner had decided not to issue a closure notice rather than directing a closure after six months. HMRC maintained that given the outstanding information and documents in the present enquiry, they could not be satisfied that the correct amount of income had been included in Estate 4’s return.[37]The information was complex. It had been suggested that there was nothing wrong with Estate 4’s accounts. This might well be the case, but there were other issues to follow up. The HMRC officer had to be satisfied as to questions such as that of Alessandro Crivelli’s wealth. HMRC were not suggesting that anything in particular was wrong, merely looking at the possibilities. A large amount of information was still relevant before making the decision. Nothing Mr Wood had said in argument had changed the position; a reasonable position had been taken by HMRC. Mr Lamb asked that the appeal should be dismissed. ” 44. The Tribunal in giving its reasons why it ordered closure said:[40]“40. The enquiries made by HMRC have been wide-ranging. Various matters discussed at the meeting between HMRC and the directors and accountants for Estate 4, and dealt with subsequently in correspondence, related to possible taxation liabilities of persons other than Estate 4 itself. Under paragraph 1 of Schedule 18, “tax” means corporation tax. Matters concerning the individual tax position of the directors in respect of their remuneration are therefore not directly relevant, and we understand why the letter dated 27 August 2010 from Barnes Roffe LLP stated, “. . . this does not enable you to ask general questions about the liabilities of other persons”. However, we also understand why HMRC asked questions relating to the directors’ remuneration, as the information in respect of this might have been shown to indicate that in some way the level of profits stated in Estate 4’s accounts for the year to 31 December 2007 did not truly reflect the actual profits.[41]Having reviewed the information provided to HMRC, together with the evidence given by Mr Henry and Mr Thackeray, we find that it does not disclose any specific reason to suggest that this might be the case, and does not therefore form a sufficiently clear basis for continuing to make further enquiries into the level of the remuneration so far as the return of Estate 4 for the period is concerned. In order for us to have been satisfied to the contrary, we would have needed to have been persuaded that Alessandro Crevelli’s explanation as to his financial resources was not adequate. None of the evidence presented to us was sufficient to draw us to such a conclusion.[42]In relation to Estate 4’s corporation tax liability, our finding is that, for similar reasons, we are not satisfied that any of the information provided in evidence by HMRC is enough to suggest that the profits as stated in its return for the period are not correctly stated. Again, the generalised enquiries have not raised any specific issues which HMRC are in a position to demonstrate that they wish to follow up. HMRC have not given us any clear indication, with supporting evidence, of anything in Estate 4’s return which needs to be subjected to further enquiry, nor have they established supporting evidence pointing to any respect in which the return may possibly be considered to be deficient.[43]Questions in relation to the potential UK tax liabilities of the Luxembourg and Italian companies in respect of profits which might be treated as derived from some form of trading operation in the UK are in our view peripheral to the enquiry into Estate 4’s return. We accept that paragraph 25(1)(b)(ii) refers to “any amount that affects or may affect . . . the tax liability of another company for any accounting period”, but in order to satisfy us on this basis that a closure notice should not be issued, it would have been necessary for HMRC to point to some specific amount in Estate 4’s accounts for the period, and demonstrate why it was appropriate to continue enquiries into that amount.[44]In relation to the wider question of possible trading in the UK through a permanent establishment, we accept Mr Wood’s argument that under s 6 of the Corporation Tax Act 2009, a company is not chargeable to corporation tax on profits which accrue to it in a fiduciary or representative capacity (except as respects any beneficial interest which it may have in those profits). The basis for imposing a charge to UK tax on profits derived by a non-UK resident company trading in the UK through a permanent establishment which happens to be constituted by a UK company is entirely separate from the liability and collection arrangements which apply to the latter’s own profits. Any profits of the Luxembourg or Italian companies could not be treated as being within the scope of Estate 4’s corporation tax return; this could only concern profits properly attributable to Estate 4’s own activities and consequently potentially chargeable to corporation tax in Estate 4’s hands.”45. In my view this case is if anything a stronger one than Estate 4 for directing closure. Mr Floy’s admission from the witness box that no amendments could be made, whatever the answer to his most recent questions in the Schedule 36 notice, settles the issue.46. It is no part of my task in this case to decide the question whether there has been a loss of tax in relation to some person other than the appellant, and I do not do so.47. But I cannot refrain from commenting on what HMRC has done here. The SAV advice that Muller Margarine , a case from 1901 (and a non-tax case – it was stamp duty) was determinative of the issue was given at a time when SAV must have known about Sofra Bakery . Mr Floy made his submission to PT after he had received the appellant’s letter of 14 October 2017 where he comprehensively set out his career details and why he was shown as employed at times but nonetheless was building up his own business. None of this was referred to at all by Mr Floy in his submission.48. Mr Stephenson of PT is a technical specialist on the taxation of employment income. He must therefore know that Class 1 NICs are not collected from an employee. He was dealing with a submission that showed no tax at risk. I cannot understand why it was remotely sensible for him to suggest to Mr Floy that he should prolong the enquiry into the appellant’s return by asking him questions that could only lead to tax being collected from another person, presumably AK. Mr Floy had made it clear that there was no enquiry in that company or anyone else connected with the appellant. Mr Floy told me from the witness box that he did not even know if the appellant was a shareholder in AK.49. I therefore direct that HMRC must issue a notice to the appellant giving the conclusions of their enquires into the appellant's tax returns for 2014-15 and 2015-16 no later than 7 September 2018.50. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. RICHARD THOMAS TRIBUNAL JUDGE RELEASE DATE: 26 September 2018 [1] In fact the notice attached to the letter of enquiry also asked for documents in relation to rents, but no amendments were made in relation to that issue either. [2] Nowhere does the point seem to have been considered that the appellant was a chartered accountant so was if anything carrying on a profession, not a trade. [3] I have seen no further information in the papers to indicate what measure in the Budget or Finance Bill of 2014 was being referred to. [4] Me neither!