I believe that the Court would approve of the ex parte procedure as being proportionate in the circumstances of this application, particularly where the Financial Institution has been able to raise legal arguments before me and to comment on my credit card decision. I do not, of course, have power to dispense with the ex parte procedure even if I agreed with their contentions, which I do not. I do not think that any issues relating to article 6 arise at this stage; I am not making any determination of civil rights or obligations.
In their latest memorandum the Solicitors describe s 20(8A) applications as unique in being an ex parte final determination that cannot be reviewed in inter partes proceedings. I do not consider that this is the case. It is not unusual for the extent of powers to be challenged in penalty proceedings for non-compliance with a notice. If the Financial Institution wish to challenge any point relating to these applications I am sure that the Revenue will arrange for a penalty for non-compliance to be issued, against which the Financial Institution can appeal and the Special Commissioners will arrange an expedited hearing.
In relation to the Solicitors' objections to ex-parte proceedings as a breach of internationally recognised "fundamental taxpayers' rights," it is worth stating that there are two sides to the argument. The procedure is itself a recognition of such rights in that it is a safeguard against abuse of the Revenue's powers. And it is because the proceedings are ex parte that the Revenue have been able to give me detailed and highly confidential information about the investigation of 22 taxpayers, and of their sources of information which they could not have disclosed to the Financial Institution because of taxpayer confidentiality or prejudicing their investigations. As a result I am in a far better position to assess the merits of the application than if the Financial Institution had been allowed to be present. The benefits of the procedure were accepted by the Court of Appeal (the point not being in issue in the House of Lords) in R (on the application of Morgan Grenfell) v Special Commissioners [2001] STC 497 in which the Revenue argued (at [49]) that the self-evident risk of compromising the investigation shuts out any possibility of an oral procedure, which the Court accepted (at [50]) saying that an inter-partes procedure would lead to the accidental disclosure of material to which the taxpayer was not entitled, the disclosure of which would run counter to Parliament's purpose. That point is clearly demonstrated here. The Solicitors suggest in their latest memorandum that it is tenuous to extend the principle in Morgan Grenfell , which was a notice to that company in relation to their own affairs, to a third party application, at least when the recipient of the notice does not have a personal or especially close relationship with the taxpayers concerned. The opposite seems to me to be the case; disclosure to the Financial Institution would breach the confidentiality of all its customers. Finally, the Solicitors suggest that an ex-parte procedure is irrational when there is no equivalent in indirect taxes. It is publicly known that a review of powers is currently taking place following the merger and that is the correct forum for such matters to be considered. In any case I have no power to override that Parliament has laid down an ex parte procedure.
So far as EU law is concerned, the Solicitors have provided a seven-page appendix of arguments. They appreciate that foreign suppliers of banking services will not be put in a worse position than UK banks. Nor is there any discrimination against UK persons who use such services. However, they contend that the Notices involves a restriction on the provision of such services, and of the free movement of capital (which is not restricted to the EU), and possibly the freedom of establishment, as in their example of a law firm with offices and client accounts in a number of countries. They argue that a general presumption of tax evasion cannot justify fiscal measures which compromise the objectives of the free movement of capital, citing Leur-Bloem , Case C-28/95, [1997] ERC I-4161 and Commission v Belgium , Case C-478/98, [2000] ECR I-7587 . In their latest memorandum the Solicitors point out that the only thing known to unite the people affected by the Notices is that each of them has exercised a fundamental freedom by opening a non-UK bank account.
The Revenue contend that there is no objection to the Notices on EU grounds. They argue that in Arblade , Case C-376/96, it was the creation of a double burden that was the restriction. There foreign employers had to pay employers' contributions to a fund in the host state in addition to any in the state of establishment, which was an additional expense for undertakings established in another member state and accordingly a restriction (at [50]). So was the obligation to draw up and keep documents in accordance with Belgian legislation (at [58]). Here there is no double compliance burden. In Finalarte , Case C-49/98, the restriction which required to be justified, was that employers established outside Germany had to provide more information to the fund for providing holiday pay to construction workers than German employers. The Court stated that it was not a justification if the State can check on the basis of documents required by the rules of the state of establishment (at [74]). The Revenue cannot use such documents here. They contend that the Court decided in Leur-Bloem , in relation to whether tax relief on a merger could be denied in accordance with article 11 of the Mergers Directive that an operation not carried out for valid commercial reasons may constitute a presumption of tax evasion or avoidance (at [44]), that states cannot have a general rule automatically excluding certain categories of operations, but must observe the principle of proportionality in determining the internal procedures necessary for this purpose (at [48(b)]). They point out that Commission v Belgium decided that a prohibition against Belgian residents acquiring Eurobonds issued by Belgian state in Germany on account of the likelihood of tax evasion was not proportionate.
Assuming that the persons with UK addresses whose information is sought by the Notices are UK residents (if they are not, the information about them is of no interest to the Revenue), the Notices are sought for the purpose of taxing them. If they have declared their foreign interest they will not even know about the Revenue's enquiry. If they have not paid tax the only disadvantage that they might suffer is that they are likely to be asked to demonstrate that the interest is for some reason not taxable, which is a burden that any UK resident (and I presume, any resident of any other Member State) may have to undertake. Had they opened a UK bank account, the UK bank would automatically give the Revenue information about interest earned on that account every year, which is arguably more onerous than under the proposed Notices. While I accept that a presumption of evasion cannot justify a breach of the fundamental freedoms, such as would be involved if, for example, the UK tried to prevent residents from having bank accounts abroad, I do not consider that the Notices are in this category. They are seeking to obtain information that will determine the extent of tax evasion, not because there is any presumption that such evasion exists, but because a sample of cases derived from information already in the Revenue's possession has demonstrated that the extent of evasion is likely to be substantial. The real question is whether the Notices are proportionate. The only restriction on opening non-UK bank accounts is that people may have to explain to the Revenue why interest on the account is not taxable. I consider that the Revenue are pursuing a legitimate purpose, which the information so far obtained shows they are right to pursue and, since there is no other way of identifying the persons concerned, their approach is, in my view, proportional.
The Solicitors also point out that from July 2005 the Savings Directive enables the Revenue to obtain at least some of the same information by another route. Section 20(8A)(d) requires that the information which is likely to be contained in the documents to which the notice relates is not readily available from another source. The Revenue reply that the first returns where information from the Savings Directive will be received are those for 2005-06 due by 31 January 2007. These Notices request documents for the six years before the Notices and ending on 5 April 2005 and so there is no overlap. They also say that some banks will in accordance with the Directive impose a withholding tax and will not have any information to supply; and those customers who are really intent on tax evasion may have moved their money out of complying jurisdictions or into a company (to which the Directive does not apply) before the Directive came into force. I agree with the Revenue on all these points.
In relation to these two subsidiaries of the Financial Institution, the Solicitors contend that there is no factual basis for the issue of the Notice. In relation to the private banking subsidiary they confirm that that they do not hold any information as described in paragraph 6(1) above and there is no systematic record of information in paper or other form. They believe that there are few relevant persons in its customer base and where they do exist the customer is likely to be non-domiciled and to have foreign accounts. It will be a matter of chance whether they possess any documents, which cannot be established without an onerous file by file search. The supplementary information required by the Notice is unlikely to be available. Even if the documents can be found the private banking subsidiary may not have "possession" within the statutory meaning and there may be contractual or foreign law constraints.
So far as these specific arguments relating to the private banking subsidiary are concerned, they have agreed that the Notice is not onerous and that the 60 day time limit is appropriate. In the light of this I do not consider that these particular arguments should prevent the issue of the Notice. If it transpires that difficulties arise which may require a longer time limit or there are problems of constraints on disclosure, it seems to me that an appeal against penalties (see paragraph 26 above) would be a suitable way of resolving them.
So far as the Notice to the Financial Institution's trust company is concerned, if there are no relevant documents there will be no burden on that company to confirm this.
As to all the Notices, I do not consider that any of these objections should prevent the issue of the Notices. In the light of the above I am satisfied first, that the Notices relate to a class of taxpayers whose individual identities are not known. Secondly, in the light of the figures, that there are reasonable grounds for believing that any of the class of taxpayers to whom the Notices relate may have failed (or may fail) to comply with any provision of the Taxes Acts. Thirdly, that in the light of these figures and the Inspector's estimate of a yield of £1.5bn, any such failure is likely to have led (or to lead) to serious prejudice to the proper assessment or collection of tax. And fourthly, that the information which is likely to be contained in the documents to which the Notices relate is not readily available from another source (and in particular most of the information required by the Notices is not known even for those whose identities are known to the Revenue). Accordingly, section 20(8A) is satisfied.
Finally, I consider whether under section 20(7) I am satisfied that in all the circumstances the Inspector is justified in proceeding under section 20. In my view the information that the Revenue has already obtained raises serious questions that merit investigation and cannot be investigated by any other means. Accordingly I consent to the issue of the Notices.
I have written these reasons for my decision in the expectation that the Revenue will send it to the Financial Institution and their advisers and if it is necessary I authorise them to do so.
The previous paragraphs of this decision were released by the Revenue to the Solicitors. The Solicitors thereupon objected that the first and last sentences of paragraph 9 were incorrect: the Solicitors had not accepted that the Notices were not onerous but on the contrary had argued that they were onerous and should not be allowed on that account (amongst others). Likewise they had not agreed a time limit of 60 days (or any other period) for complying. I accept that these are valid criticisms. I take the view that it would be inappropriate to amend the main body of my decision as it correctly records the reasoning which led me to consent to the issue of the three Notices in question.
I should also record that the Financial Institution and the Revenue inform me that they have now agreed a programme of disclosure which is more specific and more limited than that which would have flowed from the Notices as they came before me.
SC 2047/05