Sarah Jane Turcan & Ors v The Commissioner For HMRC [2024] UKFTT 869 (TC)

‘HMRC’s position is quite clear in respect of “Mark II Flip Flop” arrangements; they are not effective. This stance is firmly supported by the decided caselaw referred to above.’

‘We have now received information from Baker Tilly which we have reviewed but unfortunately, this is incomplete. … It appears from the information provided, that there have been few developments in terms of liaison with Baker Tilly since … January 2013, but the notes of meeting on 11 January 2013 would indicate that matters were left with Baker tilly to consider [HMRC’s] calculations … and to revert to [HMRC] by March, with their thoughts. We understand … that you would only be willing to accept a settlement under the Litigation and Settlement Strategy which would equate to the full amount of tax which would be due … but unfortunately, this is not acceptable to our clients or their insurers. … the insurers and their advisers remain of the view that there is a reasonable basis for anticipating the success of the [Bowring] appeal to the Upper Tier Tribunal. In the circumstances and until a decision has been reached in the Bowring case, our clients are not in a position to enter into a settlement. We have no authority from our clients and our clients have no authority from their insurers to offer a settlement.’ (3) On 12 June 2015, Officer Bentley wrote to Mazars LLP under the heading of ‘Mark II Flip Flop Scheme – 2002 Enquiries’, and advised that ‘HMRC still views the Flip-Flop Mark II scheme as ineffective’ (based on Herman and Bowring FTT), and asked for documents relating to: (a) the Turcan 1968 trust beneficiaries; (b) the Turcan 1972 trust beneficiaries; (c) Mrs E Thompson; (d) Dr G H Draffan; and (e) Mr C H Wiseman. An ‘informal request’ for the documents on a ‘trust-by-trust’ basis was made as ‘the most efficient way to gather the information still needed’; a schedule of documents was attached to each letter for compliance by 7 August 2015. (4) In a conference call on 17 August 2015, attended by HMRC (Mr Bentley, Martin Roberts, and Rose Noble), Mazars (Mr Mackenzie and Debbi Riddoch) and Clyde & Co (Chris Waddington); a note of the call was prepared by Mr Roberts of HMRC stating: (a) Clyde & Co had joined the conference in its capacity as solicitors to the insurer, and would ‘represent interests as necessary’. (b) Mr Mackenzie referred to the previous agreed approach of selecting a representative case and queried why HMRC were departing from that approach. (c) Mr Bentley explained that his role as a ‘technical lead’ is ‘to make progress in helping to bring the scheme and followers to a conclusion by providing a clear direction’; that HMRC have changed their approach with this type of tax avoidance cases, and Mr Bentley offered to make lists of documents already held by HMRC to assist in highlighting documents that remain outstanding. (d) Mr Mackenzie mentioned the Bowring appeal heard by the UT in March 2015, and asked why HMRC did not wait for the UT decision because ‘if it goes against HMRC then his clients’ documents will not be needed’. (e) Mr Bentley responded by saying that he was aware from the enquiry correspondence that ‘it had previously been argued for [Mazars’ clients that their cases] are different from the decided case, so HMRC need to be certain whether the facts are different or the same. (f) Mr Bentley agreed to provide lists of documents already held by HMRC. (5) On 1 September 2015, Officer Noble provided Mazars the agreed list of all the information in HMRC’s possession that had been formerly provided by Tenon. The list included documents for each Appellant (other than Mr Wiseman): Deeds of Trust, Deeds of Appointment, Deeds of Indemnity, and minutes of trustees’ meetings. (No copies of the actual documents were provided.) HMRC also extended time for compliance with the information requests to 30 October 2015. (6) In a conference call on 27 October 2015, Bowring UT (newly released) was discussed. Mr Bentley advised that the UT decision did not affect the informal information requests; HMRC still needed to determine if the implementation of the scheme for Mazars’ clients were ‘on all fours’ with that of Bowring. (7) By email dated 28 October 2015, Mr Mackenzie wrote to Officer Bentley to ask for an extension of time by 4 weeks to 27 November 2015 for compliance, stating that: ‘Whilst we have received a box of papers from Turcan Connell for one individual being representative of all of the individuals for whom we are acting, we have not yet been able to review all of the paperwork which has been provided. We, and our clients, are mindful of the [Bowring UT] decision … and wanted to discuss any potential impact of this decision, and the possibility of HMRC submitting an appeal, on our client’s position.’ (8) On 26 November 2015, Mazars wrote to ask for a further extension of time to 11 December 2015, stating: ‘Ray Smith of Clyde & Co [solicitors] is involved in the matter in that his firm are acting for the two insurers. We are currently awaiting confirmation from Ray Smith that the insurers have no objection to our most recent proposed communication with you which we have sent them in draft. On receipt of their approval we will arrange to email the relevant correspondence to you.’ (9) On 11 December 2015, Mazars wrote for extension to 8 January 2016, stating: ‘… Clyde & Co … have not yet received the approval of the insurers to our proposed correspondence with you. … we are not in a position to respond …’ (10) There would appear to be further extension of time, and on 11 February 2016, Mazars wrote with its analysis of Bowring UT and proposed to HMRC the following: ‘… our intention would be to review these factors in [Bowring UT]and compare those with our clients’ circumstances with a view to evidencing that the steps taken by our clients are on “all fours” with those taken by the trustees of both the [transferor trust and the transferee trust in Bowring].’

‘[33] JB stated that it is unclear why certain documents still have not been provided. JB queried whether this was legal privilege? RM responded that the purpose of this meeting was to go back to HMRC’s technical analysis. They cannot understand the context [as] to why information is actually required if there is no new argument. What is HMRC’s new technical argument as they couldn’t find a successful argument in Bowring? [34] CW said HMRC haven’t had a case since Bowring. This current case might be part of the next batch taken forward. HMRC need a new argument, no new cases pending at present/maybe new arguments in this case. [35] JB said HMRC appreciates the s90 point but wants to judge all the relevant factors. This has not been presented to HMRC so they would like all relevant documents as they cannot currently reach a conclusion. [36] RM said that Mazars can’t see why technically any additional documents would assist – no mileage. [37] JB admitted that HMRC is on the back foot. They would be happy to close the case once they have received the relevant facts. [38] CW added that they need to establish facts so they can develop their technical argument. The only way to progress the case is to have all the facts. [39] JC asked what the decision making progress [sic process] was at HMRC. JB said that they have an internal governance system. Once the documents were provided they would then run it pass technical colleagues who would determine whether they shared Mazars’ view i.e. there was no prospect of success.’

‘We agree that HMRC cannot legally require LPP information and documents. In the current context this means confidential documents and information between a lawyer and client obtaining or giving legal advice. This does not include tax planning advice between an accountant and client.’

‘At para 91 [of Bowring UT Barling J] concluded that, on the facts of the Bowring case, he did not consider the trust making the capital payments was a mere intermediary in the sense that it would be necessary if the distributions were to be received from the [transferor] trust. It is clear, therefore, that in his judgment, despite the clear meaning of s90, there could be circumstances where the capital payments could be treated as being paid by the old trust. I believe that this is what Justice Barling means when he says that all the relevant factors in each case must be considered.’

‘Therefore where there is an effective appointment to the transferee settlement and a subsequent distribution by the trustees of the transferee settlement we cannot see given the very prescriptive terms of Section 90 and following [Bowring UT] … how any documentation over and above the legal documentation (which … you already have in your possession) would change [Bowring’s] very definitive conclusion.’ (Emphasis original.)

‘[Para 89] “In my view the issue raised here requires all relevant factors to be considered, and each case will depend on its own facts. Relevant facts will no doubt include whether what is done is pursuant to a plan or understanding or agreement.”’ (All emphasis original.) (3) Officer Whitehead acknowledged that HMRC hold ‘documents relating to the mechanics of what happened for some but not all the cases’

‘The Bowring case … was heard at the UTT. The decision was passed down in October 2015 was an adverse decision for HMRC. The decision was not appealed but CTIS are of the view the decision was fact based, and could have been favourable to HMRC, therefore another case within the [MIIFF] pool may be suitable for litigation and endorse the favourable decision HMRC received in Herman. The documents as per the attached have been requested with the purpose of establishing the facts. The documents requested have not been provided; in the light of this I consider that my proposed course of action is the only action HMRC can take to inject momentum. This is essentially the same authority you provided for Rose Noble in 2017. … issues relating to whether some of the times are covered by legal and professional privilege. … We have now amended the schedules and have procedure in place to deal with any LPP issues.’ (2) Under the heading of ‘Brief summary of facts and the compliance check to date’: ‘… Despite the Bowring decision, HMRC’s view is that the [MIIFF] scheme does not work in certain circumstances. HMRC have provided a commitment that any suitable enquiry/appeal will be taken to the Tribunal if a settlement cannot be reached by agreement. HMRC did issue a circular on 11 August 2014 which outlined the effect of … [Herman] and invited the taxpayer to make an offer of the outstanding tax and interest. … In the same letter … [it] was advised that if no offer was forthcoming, HMRC would assume that they wish the matter to proceed to litigation, and that this could include the issue of a notice under Schedule 36 FA 2008 …’ (3) Under the heading ‘Why you need to use this particular power?’ ‘The documents as per the attached [Sch 36 Notices] are required so that we may establish the facts and therefore whether the arrangements entered into so that we may establish whether this case is suitable for pursuit to litigation. … a formal request to supply the outstanding is the only action HMRC can take to obtain them and progress the enquiry. All of the documents are over six years old and as such authority is required before issuing the Sch 36 Information Power.’ (4) Under the heading ‘What action has been taken to obtain the information or carry out the inspection?’ ‘The outstanding documents, that will be needed before the case can progress to Tribunal, have been requested informally during the course of the enquiry the deadlines set within the informal requests have now passed and I have not received the outstanding documents.’ (5) Authorisation by Officer Curran with his conclusion as follows: ‘Following discussion to better understand the difference between the previous failed Bowring case and the circumstances of the Turcan Trusts, I am content to authorise the request. The documents requested are not unreasonable and some failings in the transfer of cases to current agents (Mazars) together with the non-provision of requested information has contributed to the significant delays. Information requested is pivotal to understanding the intent and gain a fuller picture of Trust activity.’

‘Letter [faxed] from Turcan Connell to Sedgwick Detert, Moran and Arnold FAO Jolyon Grey – signed and returned by Heather Thompson’; (2) Filo Number D4: ‘Letter to Saltire Trustee from Sedgwick, Detert, Moran & Arnold’, (Saltire Trustee (Oversees) Ltd was the trustee of the transferor trusts of the Turcan family); (3) E3/E4/E7E8/E9: Letter from Ambridge [Insurer] to Global Financial & Executive Risk Practices regarding the Turcan 1968/1972 / Wiseman 1988 Trust/Thompson 1988/ Draffan 1988 Trusts: Proposed Tax Opinion Insurance Policy; (4) E12: ‘Note to DAC re Insurance Arrangements: Len Thompson Trust. Mentions engagement letter from law firm issuing the opinion: No copy attached here’; (5) E16: ‘2xEmails: First is request from Ambridge for additional documents; 2nd is reply’

‘Items 2,3,5,13,17 & 18 – information not in the possession of the beneficiaries’

‘We have had various dialogues with the beneficiaries in relation to documentation which is in their possession. The above items related specifically to documents which, to the extent that they exist, I would expect may be in the possession of the trustees. The beneficiaries have confirmed that they are not in their possession. I would be grateful for your own/Donald’s comments in terms of the existence or note of these documents and whether any are still in possession of the trustees. … Carl Whitehead of HMRC had commented on the fact that whilst the documents may not be in the possession of the beneficiaries, he indicated that they have the power to obtain the documents. … The key word appears to be “if” the items are in the power of the beneficiaries to obtain. You mentioned that under trust law You mentioned that under trust law the type of documents to which a beneficiary would be entitled to have sight of would be restricted. … We would like to put the argument to HMRC in terms of the power of the beneficiaries in these circumstances …’ (2) There would appear to have no response for over a year from Turcan Connell, in part due to restriction to office access during the Covid pandemic, as evidenced by Riddoch’s email to Duguid dated 9 December 2021: ‘I appreciate at the time, like us, you had difficulty accessing your office to arrange to retrieve old files from archive and access any files in your office. We do not appear to have had any response to the items detailed in my email of 7 October 2020 in relation to documents which HMRC have requested sight of and which may be in your trustee files … I understand from Ross [Mackenzie] that in view of matters that have come to light in relation to the late Mrs Thomson that you may currently have access to old files and we would very much appreciate if you/ Donald Simpson could review your files and provide us with your comments in relation to my email of 7 October together with copies of any relevant correspondence that you hold.’ (3) Duguid’s reply dated 19 January 2022: ‘I have spent hours looking for these documents and have identified some of them. Some will be in the possession of Tenon (e.g. they instructed Sedgwick, Detert, Moran & Arnold in terms of Item 13.) So some of these are in the possession of Turcan Connell. Is that to be treated as in the possession of the trustee? I should also note that the trustee is no longer the trustee of any of these trusts as they have all been wound up. Do you want me to send them to you or will that make them in the possession of the beneficiaries?’ (4) Duguid regarding restriction to beneficiaries’ right to documents: ‘… I obviously cannot provide that advice. It is also a very wide topic which there is not clear case law. But basically it is as I mentioned to you in 2020 i.e. under Scottish trust law, beneficiaries do not have a right to see all trust documentation. They might have a duty to see trust accounts and trust deeds (even that is debatable particularly depending on what type of beneficiary they are) but I do not consider they would have an entitlement to see the type of documents you have asked me to look for.’

‘Item 10 – engagement with Tenon’

‘We believe the above documents are not reasonably required … but it would be helpful if you could let us know to what extent you have copies of these documents in any of your files.’ (2) Duguid on 19 January 2022 ‘I confirm that we have copies of the engagement letters between the trustee and tenon. I have tracked down what I believe to be final versions. There might be signed versions but that will take further hours of searching. “any documents provided for the trustees either before during or after this [presumably Tenon’s engagement?] relating to the proposed tax planning” is incredibly wide. … there would be a question as to whether it is within the beneficiary’s power to obtain these if they do not have them already.’ (Parenthesis in square brackets original.)

‘Does this mean that our hearing of Mr Mathew’s appeal is similar in some ways to the ex parte proceedings?’

‘… it is the taxpayer who knows and the taxpayer who is in a position (or, if not in a position, who certainly should be in a position), to provide the right answer, and chapter and verse for the right answer.’

‘[97] … HMRC may therefore be at a very early state of their investigation or enquiry when the notice is given, and the purpose of the notice is to obtain potentially relevant information from the taxpayer which may assist HMRC with the conduct of the investigation or enquiry. [98] That is the context in which the right of appeal conferred by paragraph 29(1) [Sch 36] has to be considered. The appeal may challenge “the notice or any requirement in the notice”, other than a requirement to provide any information, or produce any document, that forms part of the taxpayer’s statutory records … On such an appeal, the burden lies upon the taxpayer, in the usual way, to establish his grounds of appeal; and in disposing of the appeal, the FTT has the powers set out in paragraph 32(3).’

‘[68] 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 or otherwise unlawful arrangements to delay or frustrate the investigation by lengthy or complex adversarial proceedings or otherwise. It is inevitable in many cases, particularly where there are complex arrangements designed to evade tax, that at the investigatory stage it will be difficult to be definitive as to the precise way in which particular documents will establish tax liability. It is also clear that in many cases disclosure of HMRC’s emerging analysis and strategy and of sources of information to the taxpayer or those associated with the taxpayer may endanger the investigation by forewarning them.’ (Emphasis added.)

‘[59] First, it is important to recognise the purpose of the statutory scheme in Schedule 36. This represents a balance between the interests of the individual taxpayers and the interests of the wider community by enabling HMRC to investigate tax avoidance and tax evasion in a proportionate but efficient manner. As was explained in Derrin Brothers, this is achieved through the means of a judicial monitoring scheme rather than a system of adversarial appeals from third party notices which could allow taxpayers and others to delay or frustrate an investigation and could take years to resolve. The Schedule 36 scheme differentiates between the recipient of a third party notice and the taxpayer whose tax position is being checked but common to the treatment of each of them is the limited scope for objecting to a third party notice. There is no appeal on the merits and it is not open to the taxpayer or third party recipient to challenge a notice on its merits.’ (2) The expressly limited question: ‘reasonably required’ for checking tax position: ‘[60] Secondly, the question for the HMRC officer (and therefore the FTT judge) is an expressly limited one: the officer must be satisfied that the information or documents sought by a third party notice are “reasonably required” for the purpose “checking” the tax position of the taxpayer. It is notfor the officer to investigate the merits of the underlying tax investigation, or whether the investigation is itself reasonably required or justified as a precondition for the giving of a notice. That is unsurprising given that the scheme is directed at an early investigatory stage and in any investigation some lines of enquiry may prove more fruitful than others but nevertheless may need to be pursued. … Thus, provided there is a genuine and legitimate investigation or enquiry of any kind into the tax position of a taxpayer that is neither irrational nor in bad faith, that is sufficient. The challenge is not the lawfulness of the investigation, but is limited to the rationality of the conclusion that the information / documents are reasonably required for checking the taxpayer’s tax.’ (Emphasis added.)

‘Although … where the full facts are not known, HMRC are entitled to issue estimated assessments (eg see T Haythornthwaite & Sons Ltd CA 1927 11 TC 657) and are, as stated by the Supreme Court [in Tower MCashback] entitled to issue closure notices in broad terms, HMRC are not bound to do so. On the contrary HMRC is entitled to know the full facts related to a person’s tax position so that they can make an informed decision whether and what to assess. It is clearly inappropriate and a waste of everybody’s time if HMRC are forced to make assessments without knowledge of the full facts. The statutory scheme is that HMRC are entitled to full disclosure of the relevant facts: this is why they have a right to issue (and seek the issue of) information notices seeking documents and information reasonably required for the purposes of checking a tax return (see Schedule 36 of Finance Act 2008).’

‘The tax position being checked is the amount of Capital Gains Tax declared in the Appellants’

‘No analysis was put to us as to the meaning of “reasonably required” within paragraph 1 of Schedule 36. However, in our view “reasonably required” must impose a limitation on HMRC’s issue of notices to the extent that each item of information requested must be required for the purposes of an enquiry into the taxpayer’s tax affairs and that is objectively reasonable for HRMC to do so. If HMRC had the information already it would not be required nor would it be reasonable for HMRC to ask for it again. Similarly, HMRC must be pursuing a legitimate purpose in issuing the notice, so HMRC cannot undertake a fishing exercise where HMRC have no reason to believe tax has been understated.’

‘The trustees of a non-resident settlement hold assets worth £1 million. The assets have a capital gains tax base cost of £0.5 million. The trustees borrow £1 million and advance it by way of resettlement on the trust of a resident settlement for the benefit of beneficiaries of the non-resident settlement. The non-resident trustees sell the assets and discharge the borrowings. Because section 90 did not apply to the post-advancement gains, they were left in the (now redundant) non-resident settlement.’

‘The scheme is used where the settlement carrying out the transfer of value has already disposed of all or most of its assets, but the gains have not yet been attributed to beneficiaries. The transfer of value to another settlement triggers a deemed disposal of the settlement’s assets, but the settlement has few if any unrealized assets so there are few if any gains to go in the Schedule 4C gains pool. Because the Finance Act 2000 legislation only requires gains created by the deemed disposal to go into the pool, any existing unattributed gains remain in the transferor settlement and it is claimed that the capital from the transfer of value can then be paid out to beneficiaries by the trustees of the transferee settlement without triggering a capital charge.’

‘The new trick required that the trust be non-resident and that there were actual gains which had not been distributed but no latent gains. For the scheme to work, the funds would also be transferred to a new trust from which they would be distributed, but before the transfer took place s 90(1) would be switched off by entering into the exact steps which would trigger the anti-avoidance legislation that is Sch 4B, linking the transfer to the new trust with trustee borrowings. The intention was that the realised gains would be left behind in the original trust and the new trust could make distributions to the beneficiaries free of liability to CGT. Although Sch 4B applied in theory, it bit on nothing as there were no chargeable assets in the old trust. …’

‘… An obvious signpost will be the existence of a plan, if there is one. … The second signpost is to analyse the trust law and determine whether the [transferee] settlement “served as a vehicle to receive and continue the act of bounty effected by” the trustees of the [transferor] settlement. … The precise means by which the scheme was implemented will, in addition, be relevant to the question whether there is sufficient linkage to make the payments “indirectly” receipts from the trustees of the [transferor] settlement.’

‘[89] I do not believe that assessment of the facts in order to determine whether a capital distribution was received from/made by a particular settlement, is susceptible to the application of some more or less formulaic “test”, whether by reference to the existence of a plan or otherwise. In my view the issue raised here requires all relevant facts to be considered, and each case will depend on its own facts. Relevant facts will no doubt include whether what is done is pursuant to a plan or understanding or agreement.’ (Emphasis added.)

‘The proposed scheme and its intended effect would be as follows: the trustees of the 1969 trust would borrow money on the security of the trust fund, and then transfer the borrowed money to a second settlement with the same beneficiaries. In those circumstances the transfer to the second settlement would be treated by schedule 4B TCGA as a “transfer of value … linked with trustee borrowing”, so that ss 90(5)(a) would prevent section 90 from applying to the transfer. Accordingly the second settlement would not “inherit” any of the trust gains on the 1969 trust pursuant to ss 90(1), with the result that the £3m trust gains would remain in the 1969 trust, allowing distributions to be made by the trustees of the second settlement to the beneficiaries of that settlement free of CGT.’

‘[75] … [Mr Prosser] submits that the essential purpose of s 90 is to transfer trust gains of the transferor settlement for the relevant year to the transferee settlement because the capital distribution will be treated as “received from” the trustees of the latter settlement, and not from the trustees of the transferor. The thinking behind this transfer of gains is, he says, obvious. If the trustees of the transferee settlement make a distribution to a beneficiary in a later year, that will be a capital payment “received from” (“made by”) those trustees, and it will not be payment “received from” (“made by”) the trustees of the transferor settlement, who made the trust gains. Therefore, absent s.90, the payment made by the transferee settlement would not be matched with the trust gains of the transferor settlement, and tax would be avoided. To prevent this loss, s.90 transfers the gains to the settlement from which capital payments will be received in the future. [76] Mr Prosser emphasises that s.90 therefore recognises the separate existence of each of the two settlements, and that if the trust gains remain in the first settlement then tax will be avoided. … If s.90 had had its intended effect of transferring the relevant gains to the 2002 [transferee] trust, then HMRC’s current assertion of an indirect payment by the transferor would mean that the trust gains were in the wrong settlement, unable to be matched by the capital payments made to beneficiaries by the transferee settlement. … [77] … [Mr Prosser] submitted that in a case where s.90 was not “switched off” by the unintended effect of ss.90(5)(a) and schedule 4B, for example where there was a transfer of trust assets between settlements without linked borrowing, it is inconceivable that HMRC would make the present argument, regardless of whether the transfer of trust assets was part of a plan. In those circumstances HMRC would say, with justification, that any such plan was irrelevant and that the payments were clearly received from/made by the transferee settlement. …’ (Emphasis original).

‘[in relation to Items 6, 8 and 9] HMRC are asked to explain why they contend that there remain documents that are within [Dr Draffan’s] possession and power which have not been provided. For completeness, to the extent that HMRC rely on a statement in the Note of Meeting dated 29 October 2002 (C004 Note of Meeting HT Julie Hutchison John Joyce and Emma Brittain of 29 October 2002,..)which seems to suggest that the original trustees needed to consent to actions taken by other trustees, that statement is incorrect.’ that the statement is ‘incorrect’ – no evidence has been produced in support that the statement is ‘incorrect’

‘Finally, HMRC may not use their Sch 36 powers for a fishing expedition – whether for their own or the purposes of another revenue authority. A broadly-drafted request will not be valid if in reality HMRC are saying “can we have all available documents that we are bound to find something useful”. What is required is that the request is genuinely directed to the purpose for which eh notice may be given, namely to secure the production of documents reasonably required for carrying out an investigation or enquiry of any kind into another taxpayer’s tax position.’

‘… given that the scheme is directed at an early investigatory stage and in any investigation some lines of enquiry may prove more fruitful than others but nevertheless may need to be pursued.’

‘In this case, HMRC must establish its assertion that the items requested are reasonably required by the officer for the purpose of checking the appellant’s tax position, and then the onus is on the appellant on the grounds of its appeal, including grounds that an item is not a statutory record or that a restriction in Part 4 of Schedule 36 applies.’

‘An information notice only requires a person to produce a document if it is in the person’s possession or power’

‘HMRC accepted that, whilst they strictly have the burden of proof, in an issue of this type it is sufficient for HMRC to raise a prima facie case that the documents and information are in the Respondent’s possession or knowledge and then it is for the Respondent to show that they are not. As the FTT said in HMRC v Parissis [2011] SFTD 757 (“Parissis”) at [19] in relation to the predecessor legislation to Sch 36, which is in identical terms on this point: “It seems to us that it is HMRC’s application for a penalty and it is for them to satisfy us that the documents are in the respondents’ possession or power. We bear in mind it is hard to prove a negative. But, we think, although HMRC must raise a prima facie case that the documents are in the respondents’ possession or power then it is for the respondents to show that they are not.”’

‘It cannot be seriously suggested that the Respondents bear no obligation to indicate how either: (i) a document is in the taxpayer’s possession, or (ii) how it is reasonably believed to be in the taxpayer’s possession so that it can be produced. Without the Respondents properly identifying whether and why they say a document is in the power and possession of the Appellants, the FTT should not order its production.’

‘8. In respect of Items 1, 4 and 10, I can confirm that to my knowledge no marketing material exists or has ever existed. This was confirmed to HMRC… and that I am no longer in possession of Item 16. 9. Turcan Connell’s letter of 16 January 2002 is referred to at Item 1. On the advice of Mazars, legal advice privilege is claimed on all other solicitor client correspondence until this heading. 10. I understand from advice given to me by Mazars/Turcan Connell that, as a beneficiary of the above mentioned trusts I am entitled to certain information as of right – as a liferenter about the trust income I am entitled to and about the value of the trustee stat that may fall into my estate for IHT purposes. From that advice, I understand however that I do not have a general entitlement to information in the possession of the trustees. Attempts by Mazars to seek information relating to items 2, 7, 18 on behalf of myself (and other beneficiaries) were not successful. I am therefore unable to obtain documents held by the trustees outlined above and certainly [not] items 2, 7, and 18.’

‘In advance of our meeting it would be helpful if you could confirm in writing the overall costs of the exercise in terms of both tax generated and professional costs. … Taking account of the complexity of the planning and the high value, …We would like to be quite sure that the insurance cover is not affected in any way by the fact any trust is subject to Scots law and that Scottish legal advice is being provided externally from Tenon …’

‘Outlined below are the terms of our preliminary non-binding indication (the “Indication”) for the Tax Opinion Insurance Policy (“Policy”) requested by your and your client on behalf of Dr G H Draffan (the “Proposed Insured”), related to the UK Capital Gains Tax planning (“Planning”) as more fully described in the Specimen Policy from set forth below. … Based upon our review of the information that you and the Proposed Insured have furnished to us thus far, we are pleased to provide an Indication of our interest in providing tax insurance for the relevant issues. The Indication is subject to our receipt, review, and acceptance of the following underwriting documents and/or additional information: [Italics added.] 1. Warranty Letter by each beneficiary in the letter from attached hereto as Exhibit A; 2. Confirmation by solicitors representing each beneficiary in the letter form attached hereto as Exhibit B; 3. Items set forth in items 1 and 2 must be received by December 6, 2002. Policy Type & Form: Manuscript form of Ambridge Partners’

‘Copies of all correspondence and other documentation of any form including faxes, emails, notes, of telephone call and meeting notes etc relating to the offer of tax planning services by Tenon to the clients of Turcan Connell as referred to in Turcan Connell’s letter of 16/01/02. This should include all documentation prepare in connection with the planning and in particular the minutes of the meeting which took place immediately following that letter.’

‘… on 1 September 2015, HMRC responded to a request from Mazars to provide [Mazars] with details and copies of documents lodged with HMRC by Tenon in 2005 and 2006 by providing a List of the Documents with a short description of each document. No copies were provided. Document B1 [on HMRC’s List] was listed as “16/01/2002 Letter Regarding the Proposed Way of Dealing with the Stockpiled Gains”.’

‘The correspondence commenced with a letter from Turcan Connell to the client of 16 January 2002. As this letter referred to dealing with stockpiled gains and HMRC held B1 being a letter dated 16 January 2022 from Turcan Connell dealing with stockpiled gains, I concluded that it was the same letter as document B1 included in the List of Documents provided by HMRC. I concluded therefore that there was no need to include this letter in the list of documents to be included in our letter to HMRC of 29 January 2020 [to claim LPP for documents in Mazars’ possession which could be covered by Item 1 of the Information Request] ….’

‘it is universally believed that LAP only applies to communications in connection with advice given by members of the legal profession’

‘Litigation privilege covers all documents brought into being for the purposes of litigation. Legal advice privilege covers communications between lawyers and their clients whereby legal advice is sought or given.’

‘A client may well wish to discuss advice received with a partner, or with another adviser, … with a contractual counterparty who might be affected. The effect of privilege would be seriously dented if those communications were held to be not privileged so that, if evidence of them could be obtained., an insight as to the advice would become available. That is not a sensible result.’

‘The ratio of the decision is, I think, that where the selection of documents which a solicitor has copied or assembled betrays the trend of the advice which he is giving the client the documents are privileged….’

‘Having considered the decisions, the writings and the various aspects of the public interest which claim attention, I have come to the conclusion that the court should state the relevant principle as follows: a document which was produced or brought into existence either with the dominant purpose of its author, or of the person or authority under whose direction, whether particular or general, it was produced or brought into existence, of using it or its contents in order to obtain legal advice or to conduct or aid in the conduct of litigation, at the time of its production in reasonable prospect, should be privileged and excluded from inspection.’

‘On my analysis of the facts, it was the insurers who caused the McLeish letter to be brought into existence for the purpose of using it or its contents in order to obtain legal advice or to assist in the conduct of litigation. … The relevant proposition of law, in my judgment, is that stated by Brightman LJ in Buttes Oil Co. v Hammer (No. 3) [1981] 1 QB 223 at p. 267 as follows: “… if two parties with a common interest and a common solicitor exchange information for the dominant purpose of informing each other of the facts, or the issues, or advice received, or of obtaining legal advice in respect of contemplated or pending litigation, the documents or copies containing that information are privileged from production in the hands of each.”’

‘(i) Although they do have some different characteristics, litigation privilege and LAP are limbs of the same privilege, legal professional privilege. It is uncontroversial that the dominant purpose test, grown out of Grant v Downs, applies to litigation privilege. … I am unpersuaded that … the limbs are fundamentally different with regard to purpose. In my view, there is no compelling rationale for differentiating between limbs of the privilege in this context. The “dominant purpose” test in litigation privilege fixed by Waugh derives from Australian jurisprudence, which has since Grant v Downs treated the purpose test (whatever it might be) as applying to both limbs of the privilege. (ii) Whilst I accept that the position is not uniform, generally the common law in other jurisdictions has incorporated a dominant purpose test in both limbs of legal professional privilege, …This not only suggests that such a test is able to work in practice; but this is a legal area in which there is advantage in the common law adopting the same principles.’

‘(i) The dominant purpose criterion applied; so that, if the dominant purpose of the email was to obtain legal advice from an in-house lawyer, then it would be privileged, even if it also at the same time sought the commercial views of others. However, if its dominant purpose was to seek commercial views, then the email would not be privileged even if it was contemporaneously sent to a lawyer for the purpose of giving legal advice …. (ii) However, even if the dominant purpose is not in respect of obtaining legal advice, it may still be privileged if it “discloses or is likely to disclose the nature and content of the legal advice sought and obtained’ …, or if it “might disclose” such advice….’

‘The 31 July 2002 meeting [40] Next I consider the documents relating to the meeting on 31 July 2002, and the dominant purpose of the discussion which took place at that meeting. While I accept that part of the communications at this meeting was the continuum of keeping client and solicitor informed, I have concluded – in light of the privileged communications before and after the meeting – that – from the perspective of Turcan Connell – the dominant purpose of the communications at the 31 July 2002 meeting was for Tenon to present information to the Applicant. [41] Having concluded that the dominant purpose of the communications at the meeting on 31 July was not the provision of legal advice, it follows that the two documents relating to the 31 July 2002 meeting are not privileged from disclosure.’