Credit Suisse Securities (Europe) Ltd Credit Suisse (UK) Ltd Credit Suisse Ag - London Branch Credit Suisse International v Revenue & Customs (INCOME TAX/CORPORATION TAX : Assessment/self-assessment) [2020] UKFTT 86 (TC)

“HMRC are looking to implement BPT as they would any other tax in line with the LBS strategic propositions.”

“…as regards open issues/difficulties so that (as far as possible) – Areas of agreement are identified in advance; – Areas of fundamental disagreement to be noted and ring-fenced for further discussion.” 35. It was noted that HMRC expected to publish “guidance” around 19 May 2010. HMRC said that it wished to “get to the point where at 31 August [2010] there are no surprises and that CRMs know what they expect to receive from the banks.” 31 August 2010 was the latest date on which the banks had to file their BPT returns. The banks noted that “given the timing, expecting that discussions with CRMs would be completed in advance of 31 August was unrealistic.” 36. The last paragraph of the note under the heading: “Future enquiries/queries” stated: “– Queries to be raised by CRMs but would be managed centrally to make sure that queries raised were consistent across all entities. – Known areas of disagreement could be addressed as soon as possible after filing, but more detailed reviews could take longer.” 37. Mr Nawbatt in his cross-examination of Mr Driscoll drew attention to the distinction in the heading between “enquiries” and “queries” in the final paragraph of the note. He suggested that the first bullet point related to queries and the second related to “enquiries”

“… 4. HMRC will always seek to work through issues in real-time with all customers no matter what their tax strategy. This provides earlier certainty for the customer but also allows HMRC to detect avoidance more quickly. 5. HMRC customers should have or buy in skills to fulfil their ordinary day-to-day tax compliance requirements. HMRC will provide assistance to resolve uncertainty around complex or significant issues and commercial transactions. …” 39. The document emphasised that the normal channel of communication would be with the taxpayer’s CRM. 40. The second document produced by Mr Prosser was a note of a meeting of the Association for Financial Markets in Europe (“AFME”) which took place on 3 March 2010. The meeting was attended by representatives of a number of banks, including Mr Watson on behalf of CS and Mr Davidson on behalf of HMRC. In relation to BPT Mr Davidson explained: “A Large Business strategy has been set to encapsulates the arrangements to ensure a tailor-made service for large business that works in real-time, wherever possible, and give certainty about the outcome. The aim is to have a real-time dialogue before the filing date so that as many issues as possible can be resolved by that date.” 41. On 1 September 2010, Mr Norris sent an email to a colleague within HMRC (Mr Laing) in which he commented: “CS has engaged positively with us on the BPT process although there remain some issues to tidy up. This may necessitate opening an enquiry anyway but I would concur with the view that it would be difficult to prove arrangements were made to circumvent BPT.”

“HMRC may enquire into a BPT Return: anything contained in the Return or required to be contained in the Return. A notice of enquiry must be in writing to the taxable company and within the time allowed: • If the BPT Return was delivered on or before 31 August 2010: any time on or before 31 August 2011….” 43. This paragraph was unchanged in the final version of the BPT Manual issued on 7 June 2010. 44. Mr Driscoll’s evidence was that CS’s tax team had looked at the BPT Manual as part of the preparations for the BPT return itself. He specifically said that CS had looked at the part of the Manual which stated that a notice of enquiry would be in writing. Interaction between HMRC and CS prior to submission of BPT return 45. CS held two meetings with HMRC regarding BPT prior to the submission by CS of its BPT return. The meetings concerning a number of matters affecting their BPT liability (of which the BPT treatment of the APPA was one). 46. At the first meeting, held on 29 July 2010, HMRC’s representatives were Craig Norris (CS’s CRM) and Nick Goodwin, a Tax Specialist at HMRC’s Large Business Service. CS’s representatives included Mr Driscoll and Mr Andrew Watson (Managing Director, EMEA Head of Tax). Mr Goodwin took notes of the meeting, although these notes were not shared with CS at the time. CS gave a presentation to HMRC on the processes which had been put in place for calculating its liability to BPT. In the course of the meeting CS referred to a remuneration plan (although not specifically refer to as such, this was accepted to be a reference to the APPA) where the compensation was deferred “and therefore is not considered as awarded.”

“the deferred compensation [again, a reference to the APPA] is not within BPT. Is this correct?”

“[Mr Norris] referred to [Mr Driscoll’s] email of 23 September and Mr Dougan’s (CEO CS) statement in the CS press release 20 October 2009. [Mr Norris] said that we [i.e. HMRC] wanted to just clarify the position so that we had understood CS’s position”. 55. The note recorded discussions between HMRC’s and CS’s representatives regarding the APPA and whether it was subject to BPT. In particular, there was a discussion about the applicability of paragraph 6(3). Although Mr Norris offered to set out HMRC’s view in a clear email, it was agreed that CS would go back to their advisers and provide information on the advice they had received and the reasoning which led them to the conclusion that the exemption under paragraph 6(3)(b) of Schedule 1 would apply (HMRC having indicated that they thought that paragraph 6(3) did not apply). 56. The “Action Point[s]” arising from the meeting were recorded as “CS to provide details of the advice they received surrounding para 6(3)(b)”, and “CS to provide an overall analysis as previously agreed at the meeting on 11 August 2010”. 57. Mr Driscoll accepted, in relation to paragraph 6(3)(b), that CS and HMRC were not in agreement at this stage but added that HMRC had suggested an alternative way of dealing with the issue which involved CS giving further details of their reasoning. 58. The note records that Mr Norris: “…concluded that only the issue of the APPAs needs to be resolved and provision of the analysis of decisions made, which ties up the whole process and is useful as an audit trail.” 59. Mr Driscoll’s evidence was that at no stage during the course of this meeting was he given the impression that HMRC was giving notice of enquiry or that HMRC was intending to enquire into CS’s BPT return. 60. On 3 November 2010, Mr Driscoll sent an email to Mr Watson and other colleagues as follows: “Here is a note of the action points from yesterday’s meeting with HMRC on the above [”

“We trust that this is helpful. Please let us know how you would like to proceed. If you would find a further meeting helpful, we would be happy to discuss.” 62. Mr Driscoll said that CS’s tax team remained confident that they would be able to explain the reason for the APPA’s exclusion from the scope of BPT to the satisfaction of HMRC. 63. On 10 December 2010 Mr Watson emailed Mr Norris and Mr Goodwin a reconciliation of CS’s Bank Payroll Tax which was formatted in the same way as the initial presentation that CS gave to HMRC. 64. On 13 December 2010 Chris Davidson emailed the BBA (who forwarded the email to CS on the same day) to say: “You’ll recall that HMRC wished to gain assurance of banks’ payroll tax compliance and that we indicated we would want to undertake some post-filing assurance activity. We said this would be proportionate and appropriate. The extensive pre-filing engagement means that relatively little post-filing enquiry work will be necessary. Our approach is based on the following categories: 1. Banks with CRMs that did not take the opportunity to engage with HMRC in pre-filing discussion. We’re likely to open enquiries. 2. Issues identified through pre-filing discussions that have still not been resolved. We’ll need to complete these discussions. 3. Project work to identify other areas of risk. 4. Banks without CRMs… When we met, we discussed the project work we might do under 3 above. We put to you six possible areas; the discussion helped us to narrow these to two… We’ve now completed both these projects and have identified a small number of banks we are approaching for further information. Reaching this stage means CRMs can now start to confirm to the rest of their customers that they do not intend to open a payroll tax enquiry under para 23 sch 1. Most of your members with CRMs (whether in LBS [Large Business Service] or LC [Large and Complex]) should receive such a message over the next couple of weeks. For those without a CRM, it will take us slightly longer to finish our risk assessing, but we should be able to send messages to customers sometime in the new year.” 65. On 2 February 2011 Mr Taylor-Gooby (who had recently taken over the handling of CS’s BPT issues from Mr Norris due to the latter’s illness [1] ) emailed Mr Watson in relation to BPT: “As per my voicemail I am standing in for my colleague Craig Norris in relation to BPT issues. I note there is an open issue regarding payments under the APPA agreement. I thought it might be helpful if we had a quick discussion about where we are we [sic] a view to considering how this matter might be resolved.” 66. Mr Driscoll’s evidence was that CS’s tax team thought it took a while for Mr Taylor-Gooby to get up to speed on discussions that had already taken place with HMRC and they had to cover items that had already been discussed with Mr Norris. 67. On 15 February 2011, Mr Taylor-Gooby replied to AW’s email of 19 November 2010: “First of all let me say that the features of the Credit Suisse APPA scheme are in many ways different from those I have seen elsewhere. The plan does seem to have in general the purpose of spreading compensation awards in a manner designed to match awards more closely to future performance through the links with “return on equity” and the possibility of variable calculation metrics leading to upward or downward movement in the notional deferred amounts. But there is still the fundamental question of whether it is sufficiently different to put the awards completely or partly outside the scope of the tax. Whilst acknowledging that the circumstances are not clear-cut I am not immediately convinced that it does. Since we have agreed to meet to discuss the matter I shall outline what I think are the main technical issues around this conclusion and will aim to expand on this in discussion.” 68. Mr Taylor-Gooby then considered the application of paragraph 6(2) and (3) and paragraph 12. On paragraph 6(2) he acknowledged that, on the question of whether a discretion had been exercised, that “this is something that can be considered further but my immediate view is that this falls within the territory outlined at BPTM [HMRC’s BPT Manual] 3130 and 3131 and does not lead to the conclusion that the payments are excluded remuneration.”

“In conclusion my initial view is that more information is required to come to a firm conclusion regarding the application of paragraph 6 but that if the payments are excluded by this route, paragraph 12 will apply to the appropriate measure of the amounts awarded under the scheme. I look forward to discussing these issues further.” 69. In relation to the application of paragraph 6(3) Mr Taylor-Gooby wrote: “Again I think consideration of the surrounding facts might clarify the application here.” 70. As regards the application of paragraph 12 of Schedule, Mr Taylor Gooby said: “In my view the operation of the scheme does constitute an ‘arrangement’. There is a difficulty, of course, in calculating the amount that it would be ‘reasonable to assume’ will be paid under the APPA but that is something I would be happy to discuss.” 71. Mr Driscoll understood that HMRC were expressing an “initial view” that more information was required from the group in order to determine if the paragraph 6 exemptions applied, but that HMRC’s view was that paragraph 12 would apply, if not. He appreciated that CS “still had some persuading to do” in order to convince HMRC that CS’s analysis was correct. His impression was that the discussion with HMRC remained open, that these discussions were still on a “real-time” non-enquiry basis and that HMRC were continuing to gather information in relation to their understanding of how BPT would be applied to the APPA. Nonetheless, the CS tax team remain confident that they would be able to explain the reasons for the APPA’s exclusion from the scope of BPT to the satisfaction of HMRC and avoid the need for an enquiry. At no time did Mr Driscoll or anyone else in the CS tax team consider that HMRC was giving notice of their intention to enquire into CS’s BPT return. 72. On 7 March 2011 Mr Watson replied, in advance of meeting HMRC to discuss the issues, to set out CS’s thinking in writing. “Thank you for your letter of 15 February 2011, setting out some of the issues relating to the [BPT] treatment of the APPAs which have been awarded by Credit Suisse. Before we meet to discuss these issues, we thought it would be helpful to set out our thinking in writing. 73. Mr Watson then addressed the issues raised by Mr Taylor-Gooby. His letter ended: “ Next steps We will be in touch to schedule a meeting to discuss these issues. As these points are, largely, questions of law, we would like to bring our legal advisers, Jeanette Zaman and Dominic Robertson of Slaughter and May to the meeting; please let me know if you have any issue with this. Of course, please also let me know if it would be helpful to have any further information on these points before the meeting. We look forward to working with you to resolve our BPT position.” 74. On 18 May 2011 a meeting took place between Mr Watson and Mr Driscoll for CS and Mr Taylor-Gooby and Mr Goodwin for HMRC. Mr Goodwin’s note of the meeting records the opening discussion in relation to BPT : “AW explained that whilst Credit Suisse has taken advice from Slaughter & May [sic] they had not invited them to attend this meeting as they thought it would be best to explain the company’s view and to add further clarity. RTG [Mr Taylor-Gooby] introduced himself and explained his background and connection with [BPT]. RTG stated that in general terms all BPT had been settled apart from Credit Suisse although this was not a criticism. RTG went on to say that whilst the APPA was a development as a result of the FSA discussions it seemed to go much further than what he has seen and therefore appreciated that there could be some difficulty in arriving at settlement. RTG added that we want to seek settlement and not to rush off to tribunal and apply our litigation strategy. AW agreed that CS would want to seek settlement and thought it would be useful to explain to RTG what CS had done and why.” 75. The note then recorded a discussion of the various technical provisions of Schedule 1 FA 2010. Later in the meeting the note records: “RTG made reference to some advice from technical specialists within HMRC. He added that we do not want to proceed to litigation, but the point of the legislation with regard to discretion may be a point that a lawyer may need to look at. … RTG said that we would need to look further at the issue of discretion and its extent, six legal interpretations on the point of Para 12. We would hope to respond quickly and if we disagree we will lay out further our reasoning.” 76. CS agreed to provide HMRC with some documentation relevant to the APPA. 77. In relation to the meeting of 18 May 2011, it was not, as I understood it, suggested by HMRC that a notice to open an enquiry had been given in or by that meeting. Although Mr Nawbatt drew my attention to the references made by Mr Taylor-Gooby to possible litigation, it seemed to me that this note is simply recording another stage in the discussions between HMRC and CS. 78. On 20 June 2011 Mr Taylor-Gooby emailed Mr Watson, asking him to clarify some aspects of the discussion at the meeting. Mr Taylor-Gooby’s email ended: “Please get in touch if you would like to discuss or clarify this in any way….” 79. Mr Watson replied on 6 July 2011 with a detailed clarification and further information. Mr Driscoll said that, at this stage, the CS tax team did not know whether HMRC were going to, or intended to, enquire into CS’s BPT return or could satisfy themselves on CS’s position with the information provided. 80. On 5 August 2011, Mr Taylor-Gooby emailed Mr Watson to say: “I have given the points you raise full consideration but have decided to get a further opinion from our policy advisor before giving you a decision. I don’t think it will take long and will get back to you as soon as I can.” 81. On 15 August 2011, a CS colleague emailed Mr Watson (and copied Mr Driscoll) to say: “I think we should give some thought (and if necessary have a call with Slaughters) as to how we can protect our downside position should the Revenue revert with a notice of enquiry on or very shortly before 31 August 2011. The point is I think the legislation gives us a deadline of 31 August 2011 for submitting an amended return (paragraph 21 schedule 1). I am slightly concerned that if the Revenue deliver an enquiry notice a couple of days before/on 31 August (with or without an answer on the APPA), we may be in a difficult situation with no room to manoeuvre should they not respond positively to our APPA arguments. For example perhaps it is worth us spending some time on preparing an amended return (e.g. with new market valuations); hopefully we will not need to submit it but it is there if we need it at short notice?” 82. On 16 August 2011 Mr Watson replied : “Good point. Could you please discuss with [Mr Driscoll]…as to how much it would take to have a revised return ready to go.” 83. I think it is plain from this internal CS email exchange that CS did not believe that HMRC had already given CS notice of its intention to open an enquiry into its BPT return. 84. On 19 August 2011 Mr Taylor-Gooby replied to Mr Watson’s email of 6 July 2011. As well as sending Mr Watson a letter, Mr Taylor-Gooby also emailed Mr Watson the text of the letter, saying: “I have copied below the text of a letter which I will be sending you shortly. I am sure you will want to discuss this further and I am happy to meet you when convenient.” 85. Mr Taylor-Gooby’s letter said: “I have now been able to consider fully the information provided…I have also discussed my views with our technical specialists to ensure that we have reached a position consistent with that taken in other cases.” 86. In relation to the discretionary nature of the awards under the APPA, Mr Taylor Gooby accepted that the amount of the award did not become fixed without the exercise of discretion by the relevant remuneration committee and that therefore paragraph 6. I note that HMRC have now changed their position on this issue and argued before me that paragraph 6 did apply. 87. Mr Taylor-Gooby then set out his view that paragraph 12 applied to the APPA. Nonetheless, as regards determining the final liability to BPT, Mr Taylor-Gooby indicated that it would be necessary to take account of the likely rate of attrition attributable to early leavers and said: “We clearly need to consider and agree what measure would be reasonable to take here. I [am] happy to meet with you and your advisors as necessary to take matters forward - but please note that I am now away until 30 August.” 88. Mr Driscoll said that at no point in the period 31 August 2010 to 31 August 2011 did any member of the CS tax team consider that HMRC were intending to enquire into CS’s BPT return. Mr Driscoll considered that each time HMRC had raised a query in that period CS’s tax team went to significant lengths to answer it (including by providing information and further documentation) and the dialogue simply continued with CS providing such information to HMRC as requested, without HMRC giving notice of their intention to enquire into the return. As at 31 August 2011, Mr Driscoll considered the discussions with HMRC to be “ongoing”. 89. I note also that in his witness statement Mr Taylor-Gooby did not claim that the 19 August 2011 letter could be seen as a notice to open an enquiry (in contrast to his claims in relation to the 15 February 2011 letter). He referred to the letter of 19 August 2011 as “a letter that set out our thinking on the technical application of the legislation, including paragraph 12.” 90. As already noted, CS submitted its BPT return on 31 August 2010. 74. On 11 October 2011 Mr Taylor-Gooby emailed a senior HMRC colleague (the Deputy Director of LBS (London Financial)) to say: “Subject: RESTRICTED; Credit Suisse BPT-no enquiry notice … Andrew Watson of CS ‘phoned Craig this morning, prompted by S&M’s review of the papers, to ask whether we had ever raised a formal enquiry notice and we are now out of the normal enquiry window. The answer is “no”- although it is quite clear from the papers that we were in dispute as to how the law applied to one particular bonus scheme known as the APPA. The discussion here followed on from a pre-filing presentation given by the company in July 2010. Until we meet it will not be clear how S&M intend to play this issue. If they do make a stand on this I think we have a number of defensive arguments, most particularly that the “enquiry” started in an informal way following a pre-filing presentation, ongoing correspondence made it clear that we were disputing their views on the application of BPT and CS did not object to the informal enquiries but engaged with the debate. However I wanted to give you advance warning that this problem may arise - perhaps if you have a few minutes to spare we could discuss this? ” 91. This email was forwarded to Mr Norris on the same day. There is no record of his response. 92. In cross-examination, Mr Taylor-Gooby said that, when he first received the news from Mr Norris that no formal enquiry notice had been given, he thought it was “a bit of a body blow really”

“as one would if one thought in error of that nature had occurred. So I assumed it was in error, that it jeopardised the enquiry and that I would therefore need… to take advice on the consequences.” 93. Mr Taylor-Gooby said: “I did not take over the role as case manager for Credit Suisse; somebody else was actually deputising in that role. And normally in the way we work, these kind of things, like issuing an enquiry notice and so on, would have come under their remit. I was just… a caretaker at that point. I think things changed because I don’t think [Mr Norris] spend very much time in the office at all after that and eventually took ill-health retirement. But he definitely told me - I asked him - I sort of interrogated him a bit actually and said, …, ‘What’s going on?’, and he said…‘No, I didn’t issue it’.” 94. Thus, Mr Taylor-Gooby confirmed that he had discussed with Mr Norris whether a notice had already been given. Mr Norris said that he had not issued a “formal” notice. Mr Taylor-Gooby added that he could not recall whether Mr Norris had used the words “formal notice” or whether he had said “I didn’t issue a notice.” 95. Also on 11 October 2011, Mr Taylor-Gooby emailed HMRC’s Tax Administrative Advice - Support Unit asking for their advice. After explaining the background, Mr Taylor-Gooby wrote: “In July 2011 I came to a final view on the law and made a submission to PSA who in turn gave advice which was put to the company on August 17 [2] . They subsequently asked for a meeting and told us that their advisers, Slaughter and May would be attending. S & M have now reviewed the case and pointed out that no formal enquiry notice has been issued. This situation has doubtless come about because the “enquiry” was commenced pre-filing and continued with the full involvement of the company who by their actions have accepted that we were conducting an enquiry. However we have concerns that this may not be enough for us to justify amending the assessment or raising a further assessment if the matter goes to Tribunal. There must be other cases where no formal notice was given but both sides engaged in an enquiry process informally and by consent. It would naturally help us at the meeting to know what the official line on this is.” 96. There is no record of the response to this email. 97. On 17 October 2011 a meeting was held between, amongst others, HMRC (Mr Norris, Mr Taylor-Gooby and Mr Goodwin) and CS (including Mr Watson and Mr Driscoll) and Slaughter and May (Ms Janette Zaman) to discuss the APPA and BPT. HMRC’s note of the meeting taken by Mr Goodwin includes the following: “[Mr Watson] pointed out that an enquiry notice had not been issued and was the company want to continue to discuss the APPA and explain why they believe Para 12 [sic],… He wanted to raise this point without prejudice. [Mr Taylor-Gooby] said that we had considered this and do not think that it is a problem, but if the company did HMRC would want to deal with this separately. [Mr Taylor-Gooby] went on to say that we accept that no formal written notice had been issued and although this would be the norm, to make clear what the position was, it has been clear from before submission of the BPT return that the amount to be returned/paid was under discussion that there was an enquiry. The fact that it is not in writing doesn’t ultimately inhibit HMRC.”

“17. By way of context to the BPT-specific discussion with HMRC, it is important to explain that, in or around summer/autumn 2009, I recall that I and my colleagues within the Group’s UK tax team perceived the change in HMRC’s approach to its interactions and general dealings with the Group when it came to tax matters. Around that time, many banks (including the Group) were requested to adopt the Code of Practice on Taxation and I understood that Chris Davidson of HMRC was explaining to banks that the new approach to what was promoted by HMRC as “real-time working” was an opportunity to engage with and resolve issues informally with HMRC and thereby narrow any issues. I recall from the first meeting solely dealing with BPT with Craig Norris of HMRC (on 29 July 2010) (addressed in further detail at paragraph 23 of this witness statement below), that HMRC’s policy was that (consistent with the real-time working basis under the Code of Conduct for Taxation) it was only if issues could not be resolved through bilateral discussions that HMRC would resort to using a notice of enquiry. The message was that, where banks did not engage in this way, HMRC would proceed more directly to issue notices of enquiry, likely on a wider range of points. 18. HMRC (through Craig Norris) started seeking greater engagement between the Group and HMRC prior to (and then, where appropriate, after) the Group filing its corporate tax returns to discuss and address potential material issues in relation to the same, with notices of enquiry being raised in relation to the issues that were unresolved at the end of the specific period relevant to the issue. 19. Historically, in the absence of the specific issue to address, the Group would only meet with HMRC approximately nine months after it submitted its corporate tax returns. At such a meeting, HMRC would raise its concerns and we would work quickly to close the queries HMRC had raised by addressing the points in a series of formal letters. HMRC would then issue formal notices of enquiry in respect of queries against returns which it considered had not been addressed to its satisfaction. 20. In summary, prior to summer/autumn 2009, the Group’s interactions with HMRC (through the Group Tax team) were of a more structured nature. However, from this point onwards, HMRC’s approach to interacting with the Group appeared to change, and this was reflected in their communications with the Group in respect of the APPA. This was what the Group Tax team would come to understand as HMRC’s real-time working basis, which represented a step change in the Group’s dealings with HMRC. 21. Under the real-time working basis, HMRC and the Group would discuss material issues much earlier in the process. HMRC would then sometimes ask further questions in respect of some of the Group’s answers but generally offered no further comment as to the points they chose not to pursue further. This created uncertainty for the Group because the Group could never be sure if HMRC were going to open one of the points further down the line. 22. The dialogue between the Group Tax team and HMRC in respect of the application of BPT to the APPA … took place over an extensive period of time. I later came to realise that this was effectively the first ‘test case’ I experienced of HMRC’s real-time working basis. 23. …I also recall that Craig Norris of HMRC mentioned that the idea behind this meeting [on 29 July 2010] and meetings going forwards was for the Group and HMRC to try to agree as many points as possible, so as to gradually narrow the list of issues. As I have already mentioned at paragraph 17 of this witness statement above, I recall that at the meeting Craig Norris indicated that HMRC were looking to have a position where they Group was considered to be “low-risk” on any BPT matters. Further, to the extent any remaining issues could not be resolved by bilateral discussions on BPT (in accordance with HMRC’s new real-time working basis), the Group Tax team’s expectation was that, as was normal practice, HMRC would submit notices of enquiry.” 99. Mr Driscoll accepted that his account in the final two sentences of paragraph 17 of his witness statement was not recorded in HMRC’s contemporaneous notes of the meeting and that there was no other record of the statement attributed by Mr Driscoll to Mr Norris. Mr Driscoll also accepted that when, in October 2011, CS raised with HMRC for the first time that no notice of enquiry had been issued by the time the enquiry window had closed, no mention was made of the statement attributed to Mr Norris by Mr Driscoll in paragraphs 17 and 18 i.e. that it was only if the matter was not resolved through bilateral discussions that HMRC would resort to opening an enquiry. Moreover, Mr Driscoll accepted that this point was not raised in any subsequent correspondence or meetings until Mr Driscoll’s witness statement was produced in December 2018. 100. Mr Driscoll considered that “real-time working” involved taking issues to HMRC either before and after the tax returns were submitted, taking HMRC through CS’s approach in order to agree the tax treatment of particular items in the returns. This typically involved meetings with HMRC. There were occasions when CS disagreed with HMRC in respect of the treatment of particular items in the return where HMRC. There were occasions when HMRC disagreed with CS’s analysis and issued a notice of enquiry. Nonetheless, as a general matter, CS had discussions with HMRC both pre-and post-filing, depending on the particular facts and circumstances. In the case of BPT, pre-filing discussions continued after the return was submitted. 101. In this context, Mr Driscoll referred to discussions concerning the Bank Code of Conduct, which HMRC asked banks to agree to at around this time, where the emphasis was on openness and transparency. 102. Mr Driscoll said that the issue of a notice of enquiry was regarded within CS as a “trigger event”

“it was very much the possibility”

“Dear Sirs, I would like to give notice of enquiry under paragraph 23”

“Q… But when you say what the norm is, is it fair to say that the norm would be something that brings home to the taxpayer that under a particular paragraph of a particular schedule or whatever an enquiry is being opened? A Well, it should certainly be clear in stating that an enquiry is being opened. It would probably also give the legal background, paragraph 23, Section 9A, whatever, and it should obviously make it clear to the customer that a legally valid enquiries being opened.” 113. Mr Taylor-Gooby said that it should be possible to find fairly easily [in HMRC’s records] a letter giving notice of an intention to open an enquiry. It might not be on a paper file (because increasingly records were computerised) but there should be a correspondence folder and the notice should be easy to find, labelled “Notice of enquiry” or “Opening letter”. 114. Mr Taylor-Gooby’s cross-examination continued: “Q. You’re saying that the guidance was if you wanted to carry on discussing matters [after the submission of a return] you submitted a notice of enquiry? A Well, if you wanted to carry on a discussion that might result in a change to the amount of tax payable, yes, you would have to [give a] notice - because that kind of discussion you would need to - you should issue a notice of enquiry, for which corporation tax would need to be in writing. Q So there would be no possibility of trying to settle matters to get the taxpayer’s agreement after some discussion that actually you’re right and they’re wrong and they will amend their return or something like that? A Well, you could - if the enquiry window was still in operation in the corporate agreed with you, but at the end of the - but if you’re doing it without notice, you’ve got to get to a point where you issue a closure notice and then have the power to compel a change in the submission.” 115. In his witness statement Mr Taylor-Gooby said that HMRC had agreed in discussions with representative bodies in relation to BPT that it would conduct a program of informal pre-filing discussions with individual banks. The aim would be to develop a consistent approach to common issues arising in the preparation of BPT returns across the banking sector. This would give banks greater certainty regarding their liability and minimise the need for formal post-filing enquiries. He said that this was a departure from the usual review process in other taxes such as corporation tax, where the majority of HMRC enquiries would arise following the filing of returns and associated documentation. He considered that this BPT process was effective in minimising the number of enquiries arising post-filing. However, where, as in CS’s case, the quantum of the return could not be agreed during the informal discussions he considered that “the law required a notice of enquiry to be given to the taxpayer so that a formal enquiry process could commence.”

“A …Once you get to the point where you [HMRC] can see a clear path to adjusting an assessment, he would certainly need an enquiry notice in my view. Q And this is why you assumed, when you took over [from Mr Norris], that there would be a notice of enquiry? A Well, I assumed that because there clearly had been a challenge to Credit Suisse’s position with regard to the APPA pavements, and Craig Norris had clearly signalled that he thought paragraph 12 is in point and that some sort of determining under paragraph 12 was required, and he was asking for further information, so it had the complete appearance to me of being an enquiry rather than a general discussion. Q But… you said earlier on that you made that assumption, but you didn’t check it… A I made that assumption, yeah, and I didn’t check…. Q And you didn’t change that assumption, did you thereafter? … A No, I maintained that assumption right up to the point where I was told there was no enquiry notice. Q So just to be clear then there was no occasion up to 31 August 2011 when you thought it was necessary to give notice of enquiry? A No, I mean if I had thought that, I would have done it Q But you didn’t do it? A I didn’t, while I was working the case, think that there was [sic] a notice of enquiry in operation. I mean, to be fair, I didn’t give it a lot of thought actually. I probably picked it up assuming that under normal practice in notice of enquiry would have been given and so I just carried on working at and Credit Suisse continued to act as if they thought a notice of enquiry had been given, so it didn’t really occur to me that there wasn’t an open enquiry.” 116. Mr Taylor-Gooby said that he had had some involvement with the Code of Conduct relating to banks. He considered that it was very much targeted at informal discussions pre-filing (e.g. pre-transaction rulings). In Mr Taylor-Gooby’s experience “real-time working” was where a company approached HMRC about a proposed transaction. In his view, the present appeal did not involve “real-time working”. 117. The normal practice with banks in relation to corporation tax, according to Mr Taylor-Gooby, would be for the banks: “to file their accounts and return and computations and for [HMRC] to invite them to give a post-filing presentation, explaining how they had reached those figures, and once they had done that, we would then notify them which areas we wish to enquire into and give them a notice of enquiry.” 118. He said that if HMRC were confident that “within a week or two” the discussion would be settled it might not be necessary to issue a notice of enquiry however, where the position was “difficult and going to become entrenched” a notice of enquiry should be issued. 119. Mr Taylor-Gooby did not accept that there could be an “informal enquiry”

“There may be an informal discussion about something but I don’t think it’s an informal enquiry. So I think that the recipient ought to be aware of what it is.” submissions on the procedural issue - in outline HMRC’s submissions 120. Mr Nawbatt summarised the authorities in six propositions: (1) the focus should be on the statutory language of the notice provision (paragraph 23) and the requirement to give notice of HMRC’s intention to enquire into a return. Giving notice means to intimate or to convey HMRC’s intention to enquire ( (on the application of Spring Salmon and Seafood Ltd V Inland Revenue Commissioners [2004] STC 444 ) (“ Spring Salmon ”) per Lady Smith at [32]); (2) the notice under paragraph 23 did not have to be in writing and there was no prescribed format, specific wording or formality required ( Spring Salmon at [23] and Flaxmode v HMRC [2008] STC (SCD) 666 per Special Commissioner Hellier at [27]) [4] ; (3) the test of whether sufficient notice has been given is objective and involves asking what a reasonable taxpayer in the appellant’s position would have understood from HMRC’s communications ( Flaxmode at [30]) and Wickersham v HMRC [2016] EWHC 2956 (Ch) [41] per HHJ Saffman); (4) the question is whether HMRC have sufficiently intimated or conveyed their intention so that a reasonable taxpayer in the appellant’s position would have understood that HMRC were intending to enquire into the return. The test is an objective one and not one that concerns the subjective intentions of the parties ( HMRC v Mabbutt [2017] UKUT 289 (TCC) (Judge Bishop and Judge Brannan) at [45]; (5) the notice must be clear ( Raftopoulou v HMRC [2019] 1 WLR 1528 (“ Raftopoulou ”)); and (6) the context is critical to any consideration whether notice to enquire has been given by HMRC ( Bristol & West plc v HMRC [2017] 1 WLR 2792 at [26] - cf. Raftopoulou where there was, effectively, no relevant context, in Mr Nawbatt’s submission). 121. Mr Nawbatt accepted that HMRC’s BPT Manual, particularly the statement that a notice of HMRC’s intention to enquire into a return would be in writing, was part of the relevant context. 122. However, what the parties’ subjectively understood was of limited relevance. The test was an objective one. 123. In relation to Mr Driscoll’s evidence concerning the meeting of 29 July 2010, Mr Nawbatt submitted that the statements which Mr Driscoll attributed to Mr Norris should be ignored and he referred to the decision of Leggatt J in Gestmin v Credit Suisse [2013] EWHC 3560 (Comm) at [15] to [22] in relation to the unreliability of oral evidence based on events several years ago. Mr Nawbatt noted that the first time that the words attributed to Mr Norris had emerged in evidence was in December 2018 when Mr Driscoll submitted his witness statement. 124. Although Mr Nawbatt accepted that the facts of this case were unusual, because an enquiry was normally started with a standard form letter, that was not relevant to the test was: would the reasonable taxpayer have understood from what was communicated to them that HMRC intended to enquire - in this case, into the treatment of the APPA in CS’s BPT return. 125. In Mr Nawbatt’s submission, HMRC first intimated to CS that they intended to enquire into the return at the meeting on 2 November 2010. 126. Alternatively, Mr Nawbatt contended that Mr Taylor-Gooby’s letter of 15 February 2011 gave CS notice under paragraph 23 of HMRC’s intention to enquire into the return. That meeting had to be seen in the context of the earlier discussion at the meeting on 2 November 2010 and the earlier pre-filing meetings, where HMRC had indicated that they thought the APPA was chargeable. CS should have understood that HMRC intended to enquire into the return. CS knew that in December 2010 HMRC told the BBA that HMRC were intending to send out letters to those banks into whose returns HMRC did not intend to enquire. By 15 February 2011, CS knew that they had not got such a letter. Instead, on 2 February 2011, Mr Taylor-Gooby emailed CS saying that he wanted to take forward the open issue regarding the payments under the APPA. 127. HMRC’s 15 February 2011 letter made it clear that HMRC were not satisfied with the reasoning in CS’s 19 November 2010 letter. Mr Taylor-Gooby set out his initial view and sought further information to reach a firm conclusion. This was exactly the sort of letter that an officer would send if he or she was intending to enquire into a return. It was an intimation of an intention to enquire into the return, when viewed against the background of the earlier contacts between HMRC and CS on this issue. Furthermore, statements in the BPT Manual could not assist CS - the 15 February 2011 letter from Mr Taylor-Gooby was obviously in writing. 128. In relation to the 19 August 2011 letter, Mr Nawbatt submitted further or alternatively that that letter also gave notice of HMRC’s intention to enquire into the return. This correspondence made it clear that even if a reasonable taxpayer had not previously understood that HMRC would be enquiring into the return, then it would have been clear to them from this letter that HMRC were now intending to do so. Again, the letter had to be seen against the background of the previous correspondence and meetings in relation to the APPA. Mr Nawbatt noted that Mr Driscoll had said in cross-examination that it was “very much the possibility” that HMRC would issue a notice of enquiry after receiving this letter. It was clear that HMRC, in the letter of 19 August 2011 had intimated its intention to enquire into the return to CS. 129. It was important, said Mr Nawbatt, to recall that the legal test required that the circumstances be looked at objectively from the point of view of the recipient i.e. CS. HMRC’s actual intentions in sending the letters of 15 February and 19 August 2011 were not strictly relevant. 130. The course of dealing between HMRC and CS made it clear that the discussions were not simply informal enquiries and that by 2 November 2010, alternatively, 15 February 2011 or, at the latest, 19 August 2011, the threshold set by paragraph 23 had clearly been surpassed. Credit Suisse’s submissions 131. Mr Prosser submitted that nothing in the note of the meeting on 2 November 2010 indicated that HMRC were intending to give notice of its intention to enquire into the BPT return. The note did not record any such notice being given and the words “notice” and “enquire” (and cognate expressions) are not mentioned in the note. There was nothing in subsequent communications to suggest that at that meeting HMRC had started a formal statutory process. For example, HMRC’s requests for information were not made pursuant to statutory powers which would be available to them if they had opened an enquiry. The email of 13 December 2010 also indicated that HMRC did not believe that they had opened any BPT enquiries. 132. Nothing was said at the 2 November 2010 meeting, Mr Prosser argued, to indicate the start of a formal process. A reasonable person in CS’s position would not have understood that notice had been given. Certainly, there was no evidence that HMRC’s and CS’s representatives at that meeting thought notice had been given. 133. Furthermore, at the meeting on 29 July 2010, Mr Prosser said that Mr Norris had indicated that the idea behind that and subsequent meetings was for HMRC and CS to discuss and try to agree as many points as possible so as to narrow the issues; HMRC would only open an enquiry if issues could not be resolved through those bilateral discussions. This was consistent with the “real-time working” basis, which HMRC had recently introduced for banks, whereby taxpayers were given an opportunity to engage with HMRC and resolve issues informally. The note of the meeting shows that the meeting consisted of discussions and that it was intended to continue those discussions after the meeting. 134. Furthermore, HMRC’s BPT Manual stated that “a notice of enquiry must be in writing to the taxable company.”

“If you use such a figure, it’s likely to be acceptable and abused as low risk.”

“If you adopt the methodology set out in your email of 10 August, I would not regard this as a high-risk issue.”

“68. The UT [in Raftopoulou ] came to a number of conclusions as to the meaning of enquiry, primarily based on its earlier decision in Portland Gas v HMRC [2014] STC 2589 (“ Portland Gas ”). These are recorded… as: 1. The opening of enquiries and their closure do not require any particular formality. 2. The term “enquire” as described by the UT in Portland Gas bears its natural and ordinary meaning and which includes “scrutinise”. 3. For there to be an enquiry, it must be made clear to the taxpayer that what HMRC have sent to the taxpayer notifies him in substance that an enquiry has been opened. 69. HMRC takes no issue with the first point set out above. The second and third belie a confusion on the part of the UT between the ability of an HMRC officer to ask questions of the taxpayer (i.e. to “enquire” in the informal sense) and the exercising of formal enquiry powers - here, pursuant to Sch. 1 A, para 5. In so far as the UT appears to have meant “enquiry” in the third subparagraph to refer merely to informal questioning, the UT erred in law. 70. The giving of a notice of enquiry has important statutory consequences ( f/n 1 ). In contrast HMRC regularly conducts informal discussions with taxpayers following receipt of a return or claim and no such statutory consequences flow from these discussions. The distinction between “routine or random checks” of self-assessment returns (which necessarily involves ‘scrutiny’ of a return) and HMRC’s statutory power of enquiry was recognised by Auld LJ at paragraph 31 of Langham v Veltema [2004] STC 544 . 71. In this case, the UT erred in law by asking the wrong question at [101]: “ On the facts of this case, if we ask if HMRC scrutinised what the taxpayer sent in, the answer must be yes ”

“[W]here, as in the present case, the quantum of the return could not be agreed during the informal discussion the law required a notice of enquiry to be given to the taxpayer so that a formal enquiry process could commence.”

“…you can have some engagement without issuing a formal enquiry notice….”

“Issues identified through pre-filing discussions that have still not been resolved, we will need to complete these discussions.”

"There is no requirement that HMRC must give notice before scrutinising or otherwise turning their minds to the claim; the only requirement is that the notice itself must be given within a certain period."

“[19] As we noted… above, to be effective, an enquiry notice must be understood by a reasonable person in the position of the intended recipient (i.e., the taxpayer), having that person's knowledge of any relevant context, as giving notice of an intention to enquire into a claim. [20] The letters of 12 November 2012, 26 November 2012 or 31 January 2013 do not in any way seek to 'enquire' into the Appellant's claim [under para 5 of Sch 1A TMA], and we do not consider that a reasonable person in the position of the Appellant could have understood these letters, whether read individually or collectively, to give notice of the commencement of an enquiry. [21] Specifically: (1) These letters contain conclusory statements as regards the Appellant's claim. We consider them to be examples of what an officer does when considering a claim before deciding whether to open an enquiry.16 (2) There is no attempt to investigate the Appellant's claim. We consider that a request for information or an effort to probe the claim to be an indicator of an enquiry. The fact that there was no attempt to consider the underlying facts, in our judgment, again suggests an informal engagement with the Appellant falling short of an enquiry. (3) There is—with one exception—no hint that this is a formal process. There is no reference to HMRC's enquiry process and no reference to HMRC's statutory powers. Of course, we accept that there is no prescribed form for an enquiry notice and that notice of an enquiry may very well be given without reference to HMRC's enquiry process or to HMRC's statutory powers. But that is not the point: the point is that, in this case, the absence of such statements is an indicator of the informality of the process HMRC was engaged in.” 165. Mr Nawbatt drew attention to the Upper Tribunal’s words in [20] and [21(2)] and noted that in the present appeal HMRC had both requested information and made an effort to probe CS’s position as regards APPA’s liability to BPT. I do not, however, think that these words greatly assist Mr Nawbatt. White was a similar case to Raftopoulou . The letters in question seem simply to be dealing with the taxpayer’s claim and did not evidence any form of enquiry or investigation. But that is not to say that a letter which does seek further information or probes a taxpayer’s position taken on a return thereby becomes a notice of HMRC’s intention to enquire into the return. 166. Next, there is the recent decision of the Court of Appeal in Tinkler v HMRC [2019] EWCA Civ 1392 . In this case a notice of an intention to enquire into an income tax return under section 9A TMA was sent to the taxpayer’s agent and the taxpayer but, although the agent received the notice, the taxpayer did not. In the course of his judgment Hamblen LJ (with whom Sir Bernard Rix and McCombe LJ agreed) at: “[43] The giving of a notice of enquiry is an important step with serious and immediate consequences. The tax return can no longer be amended and the taxpayer's liability for the year in question will not be settled until the enquiry is closed which may, as in this case, take years. It is also a notice which has to be given within a specified time limit. It is therefore unsurprising that HMRC should refer to it as a 'formal notice of enquiry' and treat it differently to other forms and pursuant to a specific regime agreed with professional bodies. [44] I accordingly agree with the FTT that Form 64–8 did not give BDO [the taxpayer’s agent] apparent authority to receive a notice of enquiry on Mr Tinkler 's behalf.”

“( 1 ) HMRC may enquire into a bank payroll tax return if they give notice to the taxable company of their intention to do so within the time allowed. (2) If the return was delivered on or before 31 August 2010, notice of enquiry may be given at any time on or before 31 August 2011.” 168. It is common ground that CS’s BPT return was delivered on 31 August 2010. It was, therefore, necessary that any notice of enquiry under paragraph 23(1) be given on or before 31 August 2011. 169. The words used in paragraph 23(1) are virtually identical to the same expressions used in section 9A TMA 1970 (in relation to income tax) and to paragraph 24 of Schedule 18 Finance Act 1998 (in relation to corporation tax) (“FA 1998”). Those words are also used by other statutory provisions but I do not think it is necessary to compile a lengthy list. It is clear, therefore, that Parliament intended these words to cover a wide variety of taxpayers and circumstances. It follows, also, that authorities in relation to those and other similar provisions stand as authorities in relation to paragraph 23 and this was common ground before me. 170. It seems to me that the words in paragraph 23(1) are plain English words which have a straightforward meaning. They do not require over-elaboration nor do they require resort to a dictionary or a thesaurus to find synonyms for the statutory language. Nonetheless, they must, of course, be construed purposively and in their statutory context. 171. At this point I should mention a decision of the Outer House of the Court of Session (Lady Smith) in R (on the application of Spring Salmon and Seafood Ltd) v Inland Revenue Commissioners [2004] STC 444 (“ Spring Salmon ”) upon which HMRC placed some reliance. This case involved the validity of a notice of the Inland Revenue’s (as it then was) intention to enquire into a company’s return under paragraph 24(1) Schedule to 18 FA 1998 1998. In that case the taxpayer company had a place of business in Reading and its registered office in Edinburgh. The notice was sent to its place of business in Reading and the company argued that it was therefore invalid. Also, the question arose whether the notice had to be in writing. 172. The court held at [23] that a notice of enquiry under paragraph 24 of Schedule 18 to FA 1998 was not required to be in writing. Had such a requirement been intended, Parliament would have expressly provided for it. There were instances in the tax legislation which expressly required for notices to be in writing, which suggested that it had not been considered necessary for notices of enquiry to be given in writing. [5] 173. At various points in her judgment, Lady Smith referred to the fact that a notice of an intention to enquire into a return needed to be “intimated” or to the need for “intimation” in relation to such a notice. There are some 20 such references in her judgment. I am satisfied, as Mr Prosser submitted, that Lady Smith was using the expression “intimate” in the Scots law technical sense of giving a notice. Mr Nawbatt in his submissions, however, referred on a number of occasions to the need for HMRC to “intimate” to CS HMRC’s intention to enquire into CS’s BPT return. I did not understand Mr Nawbatt to be using this expression in its Scots law meaning - there was no reason for him to do so - but rather in its usual meaning of “to make known” or “to announce”

“Again I think consideration of the surrounding facts might clarify the application here .”

“In conclusion my initial view is that more information is required to come to a firm conclusion regarding the application of paragraph 6 but that if the payments are excluded by this route, paragraph 12 will apply to the appropriate measure of the amounts awarded under the scheme. I look forward to discussing these issues further.” 181. The whole tenor of the letter is that it is the preliminary analysis with a view to further discussion. I am unable to find anywhere in that letter a clear notice to CS that HMRC are intending to enquire into their BPT return. 182. I take the same view regardless of whether the 15 February 2011 letter is read on its own or against a background of earlier communications between the parties. In particular, I do not think that the email from Mr Davidson of HMRC of 13 December 2010 alters that position. In paragraph 2 of that email Mr Davidson wrote: “2. Issues identified through pre-filing discussions that have still not been resolved. We’ll need to complete these discussions.” 183. CS clearly fell within paragraph 2 above (paragraph 1 did not apply because CS had engaged with it CRM). The message from paragraph 2 was that the issues identified in relation to CS’s liability to BPT in the pre-filing discussions would need to be completed. CS also appeared to fall within the following category: “a small number of banks we are approaching for further information.”

“We start by recalling that the judge read Leggatt J's statements in Gestmin v Credit Suisse and Blue v Ashley as an "admonition" against placing any reliance at all on the recollections of witnesses. We consider that to have been a serious error in the present case for a number of reasons. First, as has very recently been noted by HHJ Gore QC in CBX v North West Anglia NHS Trust [2019] 7 WLUK 57, Gestmin is not to be taken as laying down any general principle for the assessment of evidence. It is one of a line of distinguished judicial observations that emphasise the fallibility of human memory and the need to assess witness evidence in its proper place alongside contemporaneous documentary evidence and evidence upon which undoubted or probable reliance can be placed. Earlier statements of this kind are discussed by Lord Bingham in his well-known essay The Judge as Juror: The Judicial Determination of Factual Issues (from The Business of Judging , Oxford 2000). But a proper awareness of the fallibility of memory does not relieve judges of the task of making findings of fact based upon all of the evidence. Heuristics or mental short cuts are no substitute for this essential judicial function. In particular, where a party's sworn evidence is disbelieved, the court must say why that is; it cannot simply ignore the evidence.” 202. It seemed to me that the references in contemporaneous documents to “real-time working” did not clearly indicate that it related to post-filing periods. Mr Taylor-Gooby’s evidence was clear that it did not and I prefer his evidence on this point. Also, I think it is strange that Mr Driscoll did not refer to the statements which he believes Mr Norris made when, at the meeting on 17 October 2011, HMRC claimed that notice of intention to enquire had been given at meetings and in correspondence. Indeed the first time that these statements were attributed to Mr Norris was when Mr Driscoll filed his witness statement in December 2018. I think it is odd that Mr Driscoll’s recollection of events did not emerge earlier. 203. All that said, I think it was a fair inference for CS to draw from Mr Davidson’s email of 13 December 2010 that pre-filing discussions on outstanding issues would simply continue and that there was no clear implication that an enquiry would be commenced. 204. For the reasons given above, I have concluded that HMRC did not give a valid notice of enquiry under paragraph 23(1) of Schedule 1 to FA 2010. It follows, therefore, that CS’s appeal must be allowed. Facts relating to the substantive issue 205. The following description of the APPA is largely drawn from a statement of facts and issues agreed between the parties and from Mr Halliday’s evidence. APPA - General Description 206. The APPA was a deferred variable award forming part of the remuneration of eligible employees (managing directors and directors) for 2009, comprising a notional cash amount, vesting in 3 equal tranches on the first, second and third anniversaries of the 21 January 2010 Grant Date (i.e. in 2011, 2012 and 2013), but subject to variation by reference to certain “metrics”

“The changes announced today will be effective from January 1, 2010 and will apply to compensation awarded for the year 2009. The most important features of the structure are: 1…. 2. The introduction of two new instruments for deferred variable compensation awarded to Managing Directors and Directors… …. APPA is a cash-based award which will have a notional value that adjusts upward annually based on Credit Suisse’s RoE over three years. A mechanism will adjust the outstanding awards downwards, should the business area of the employee be loss-making.”

“Adjustable Performance Plan Awards Adjustable Performance Plan Awards (APPA) will have a notional cash value subject to a three-year, pro-rata vesting schedule. Awards adjust upwards on an annual basis using Credit Suisse’s RoE in the respective year as a multiplier. However, should a business area be loss-making, outstanding APP awards held by employees of that business area will be adjusted downwards. The metrics within the revenue divisions will be based on each business area’s financial contribution. The metrics for Shared Services, Regional Management and embedded support functions within the division will be based on the financial performance of Credit Suisse Group.”

“APPA Memos (1 November 2010)”). Each of the FAQs, Term Sheet and the earlier press releases made it clear that for Managing Directors and Directors earning more than US $100,000, 50% of their variable compensation would be in the form of the APPA. CS did not share with employees of full details of the metrics at this time because of the sensitivity of the information. They were not shared with managing directors and directors and this information was confined to a very limited number of people within the bank. 225. In October and November 2009 presentations were made to eligible employees about the APPA. Contracts of employment 226. For those CS employees who were eligible for the APPA, the standard form CS employment contract wording in respect of a discretionary bonus was as follows: “Your eligibility for an annual discretionary Incentive Performance Bonus and, in the event that you are awarded a bonus, the amount of that bonus shall be determined on the basis of factors determined by the Company in its absolute discretion. Such factors may include: the profitability of the Company and its affiliates, your division and your department; your individual performance, conduct and contribution; and the strategic needs of the Company and its affiliates. … Any Incentive Performance Bonus paid to you may at the discretion of the Company, include one or more of the following items: a) a cash payment to you, net of any applicable statutory withholdings; and/or b) a deferred cash award, or an award under the Credit Suisse Group Master Share Plan, in accordance with the terms of the relevant plan or program generally applicable to employees at your level, and subject investing, forfeiture and other terms of the applicable plan or program and any other applicable rules as amended from time to time… … To be eligible to receive discretionary Incentive Performance Bonus awards, you must still be actively employed by the Company on the payment date and you must not have, at the payment date, either given or received notice of termination of employment for any reason whatsoever. Furthermore, if at any time before the payment date, your employment terminates for any reason, or you have given or received notice of termination, you will not be entitled to any pro-rated bonus.”

“The 2009 compensation referred to above may include equity and/or cash-based awards granted under certain plans or programs including… the CSG AG Master Share Plan…and shall be subject to the terms and conditions of the governing documents and award certificates associated with such plans or programs. In addition, the 2009 compensation referred to above is discretionary and is not a contractual right to payment, and until such time as the financial statements of the Credit Suisse Group (CSG) have been finalised, CSG reserves the right to amend any such compensation. There may be circumstances where all or a portion of the 2009 compensation referred to above may not be delivered, including, but not limited to, voluntary termination or violation of certain other conditions to settlement.”

“[Mr Halliday] has confirmed to us that the compensation design [of the APPA] was discussed at various meetings of the Credit Suisse Group Executive Board… during 2010. At meetings on 18 October 2010 and 7 December 2010, a member of the Executive Board specifically raised the point of whether Credit Suisse should change the terms of the 2009 APPA. The outcome of these discussions at the Executive Board meetings was that the more restrictive metrics in the terms of the 2010 APPA should be confined to those awards only and not reflected in amendment to the 2009 APPA.” 243. Mr Halliday confirmed that this was correct. 244. Mr Halliday’s evidence was that no updated APPA memos or notices were sent to employees for the second and third tranches. Submissions on the substantive issue - in outline HMRC’s submissions 245. HMRC’s primary case was that the whole of the APPA was chargeable to BPT under paragraph 12. Paragraph 12 brings into the charge to BPT the making of arrangements which are to be “regarded as the awarding of relevant remuneration” even where the making of those arrangements would not otherwise constitute the “awarding” of remuneration under paragraph 6. 246. Mr Nawbatt submitted that the three conditions in paragraph 12(1)(a)-(c) were satisfied. 247. As regards paragraph 12(1)(a), CS made arrangements within the chargeable period in relation to all three tranches of the APPA. The word “arrangement” was non-exhaustively defined in paragraph 49(1). Just because paragraph 49(1) included non-legally binding arrangements, it did not preclude legally binding arrangements from being “arrangements”. 248. Furthermore, Mr Nawbatt argued that it was not necessary that all of the events constituting arrangements needed to be made in the chargeable period. In the present case, the arrangements constituted a series of events, including events which occurred during the chargeable period and was not limited to the making of the initial announcement of the APPA on 20 October 2009. It was not necessary that the making of arrangements could only occur at one point in time; but even if this was wrong that point in time would be the date on which employees were granted APPA’s i.e. 21 January 2010. 249. In relation to paragraph 12(1)(b), the payment had to be “to or in respect of the relevant banking employee”

“the aggregate of the amounts of chargeable relevant remuneration awarded during the chargeable period to or in respect of relevant banking employees of a taxable company by reason of their employment as relevant banking employees.” (Emphasis added)

“anything in the case of which a contractual obligation to pay or provide it to or in respect of the employee concerned arose before the beginning of the chargeable period.” 286. This makes it clear that BPT was not intended to apply to pre-existing contractual entitlements. 287. Turning now to paragraph 6, paragraph 6(1) and (2) provide as follows: “( 1 ) Relevant remuneration is “awarded” during the chargeable period if— (a) a contractual obligation to pay or provide it arises during the chargeable period, or (b) the relevant remuneration is paid or provided during the chargeable period without any such obligation having arisen during the chargeable period, but subject to sub-paragraph (3). (2) Sub-paragraph (3)(a) of paragraph 5 applies for the purposes of sub-paragraph ( 1 ) as for the purposes of sub-paragraph ( 1 )(b) of that paragraph .” (Emphasis added)

“(3) For the purposes of sub- paragraph (1) (b) a contractual obligation to pay or provide something to or in respect of the employee does not arise until – (a) the amount to be paid or provided is fixed or is capable of becoming fixed without the exercise of discretion by any person , or (b) the total amount of things to be paid or provided to or in respect of a number of employees including the employee is fixed or is capable of becoming fixed without the exercise of discretion by any person.” 290. In my view, the retention of a residual discretion by CS to vary the metrics up to the 1 November 2010 means that the amount to be paid or provided was not fixed nor was it capable of becoming fixed without the exercise of discretion by CS. 291. Reading paragraph 6(1)(a) and paragraph 5(3)(a) together, I have to focus, first, on the amount to be paid or provided pursuant to a contractual obligation which has arisen during the chargeable period. Secondly, I have to decide whether that amount is fixed or is capable of becoming fixed without the exercise of discretion of any person . 292. I reject Mr Nawbatt’s submissions to the effect that because CS had a theoretical ability to alter the metrics but could not realistically have done so. It seems to me that, although it was unlikely that CS would substantially alter the metrics, they did have the right (i.e. the discretion) to do so. Moreover, I note that CS made changes to the RoE definition in April and May 2010. Until the definitions of the metrics were finalised by CS, the final amount of payments under the APPA to individual employees could not be calculated. 293. It seems to me that, in the context of identifying the amount of a contractual entitlement (paragraph 6(1)(a)), paragraph 5(3)(a) is seeking to establish whether the amount to be paid to an employee has become finalised or is capable of being finalised and is no longer the subject of the employing bank’s discretion. The words “or is capable of becoming fixed”, upon which Mr Nawbatt place so much reliance, envisages a situation in which the amount may vary by reference to unchangeable objective tests (e.g. the performance of the individual’s business area or of the bank as a whole) but may not be varied by the exercise of the bank’s discretion. In my judgment, the bank retained a discretion to vary the amount of each individual’s contractual entitlement (by virtue of its ability to change the metrics) until 1 November 2010, on which date employees were provided with APPA Memos. 294. Accordingly, I have concluded that paragraph 6(1)(a) is dis-applied by paragraph 6(2) and paragraph 5(3)(a). 295. In the light of this conclusion, I do not think it is necessary to deal with CS’s argument that an apportionment should be made to give effect to paragraph 6(3). I would note, however, that I see no justification in the statutory language for such an apportionment. 296. Finally, I must now consider the application of paragraph 12. Although it includes contractual arrangements, its scope is wider and non-contractual arrangements also fall within its provisions. Paragraph 49 provides: ““ arrangements ” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable)” 297. The application of paragraph 12 is subject to an important qualification. Paragraph 12 (1)(a) requires that the “arrangements are made during the chargeable period”

"To my mind, the Parliamentary intention behind that provision [s12AC (1)(a) TMA 1970] is to ensure that the taxpayer knows in writing of the enquiry and so has the opportunity to put its case. There is no particular form prescribed for a notice of enquiry as long as the taxpayer knows of HMRC's decision to conduct an enquiry that is sufficient. In this regard, Flaxmode is in my view correct." [5] It was common ground before me that a notice of enquiry under paragraph 23 Schedule 1 to FA 2010 did not have to be in writing. Although section 115(2) TMA 1970 was considered in Spring Salmon it does not appear to have been observed that that provision begins with the words: "