Judge Barbara Mosedale said, in a private ruling on Mr and Mrs PQ v HMRC seen by International Adviser, that the residency status of the individuals has no influence on HMRC’s ability to issue third-party notices if their tax liability, either personal or through a firm, is in the UK.
Mr and Mrs PQ, whose full names were not disclosed due to the nature of the hearing, are British but are non-UK residents.
They own and are co-directors, together with another person, of a UK-based company.
This means that the two individuals’ tax liability, via their company, lies in the UK and is within HMRC’s jurisdiction, the judge determined.
Mosedale admitted that she found it difficult to reach a decision.
This is because Mr and Mrs PQ v HMRC is the first case to appear before the FTT regarding third-party information notices; but also because HMRC was involved and lost a similar case in 2017 involving Dubai resident and football mogul Tony Jimenez.
In Jimenez v The First Tier Tax Tribunal & HMRC, the High Court quashed the taxman’s case and its issuing of information notices to first parties, which would allow HMRC to visit businesses and demand documents.
The court ruled in favour of Jimenez because, if the Revenue wants to seek information on an expat’s tax liability, as in Jimenez’s case, it should rely on mutual assistant agreements between jurisdictions.
However, in Mr and Mrs PQ v HMRC, the taxman did not approach the non-residents directly, but instead went to their UK-domiciled company; and, by testing the scope of the Jimenez case, it found that it has the power to issue third-party notices globally, as long as the individual’s tax liability resides in the UK.
Third-party versus tax agreements
When HMRC needs to obtain information from jurisdictions outside the UK it can use Tax Information Exchange Agreements (TIEA).
These enable the Revenue to enforce domestic laws overseas in relation to income tax, corporation tax, inheritance tax, capital gains and VAT.
The UK government currently has 23 TIEAs with jurisdictions such as Jersey, Guernsey, Isle of Man, the British Virgin Islands, Bermuda, Bahamas and Gibraltar.
However, it seems that, in the Mr and Mrs PQ ruling, TIEAs might not at all apply, since the information notices issued by HMRC regarded a UK-based company, despite its directors not being resident in the UK.