RE: Why the sfo case possibly isn't going anywhere.23 Mar 2021 00:24
The Supreme Court unanimously agreed to allow KBR’s appeal and overturned the High Court’s earlier decision. The Supreme Court’s starting position was the well-established presumption that UK legislation is generally not intended to have extra-territorial effect. The question was therefore whether Parliament had intended the relevant provisions of the Criminal Justice Act 1987 to displace that presumption to give the SFO the power to compel a non-UK company such as KBR (which had no UK registered office or business) to produce documents held outside the UK. Contrary to the High Court’s decision, the Supreme Court ruled that the SFO had not been intended to have such broad extra-territorial powers, noting that Parliament had instead developed mutual legal assistance to facilitate international investigations and prosecutions.
Critically, the Supreme Court held that there was no basis for the High Court’s finding that the SFO could use a Section 2 notice to require non-UK companies to produce documents held outside the UK provided there was a ‘sufficient connection’ between the company and the UK. Implying a ‘sufficient connection’ test into the legislation would be inconsistent with the intention of Parliament and ‘involve illegitimately re-writing the statute’.
Taxpayer notices
The SFO’s case in KBR had relied in part on an earlier Court of Appeal decision in R (Jimenez) v First-tier Tribunal (Tax Chamber) and HMRC [2019] EWCA Civ 51. In that case, HMRC had issued an individual (Mr Jimenez) with an information notice under Schedule 36 to the Finance Act 2008 (Schedule 36).
As part of their formal information powers contained within Schedule 36, HMRC may issue different types of notice to assist with their investigations. The two most frequently issued types of notice are:
‘taxpayer notices’, which (subject to conditions) allow HMRC to require a taxpayer to provide information or documents that are reasonably required to check the tax position of that taxpayer (Schedule 36, para. 1); and
‘third party notices’, which (subject to conditions) allow HMRC to require any person to provide information or documents that are reasonably required to check the tax position of another identified taxpayer (Schedule 36, para. 2).
The issue of third party notices, unlike taxpayer notices, must be approved in advance by the First Tier Tribunal (Tax Chamber) (FTT), unless the recipient consents to the notice being issued. HMRC can, however, elect to seek FTT approval before issuing taxpayer notices – the advantage being that, once such approval has been given, there is no right of appeal and the taxpayer (or the third party recipient, as the case may be) would then need to seek redress through judicial review. Penalties apply for failure to comply with Schedule 36 notices, although importantly such failure is not made a criminal offence. Moreover, Schedule 36 is silent on the territorial scope of these information notices.
Mr Jimenez,
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