Guidance and the Rule of Law during the COVID-19 pandemic

The COVID-19 pandemic has forced governments around the world to become innovative in how they carry out their functions. In particular, they need to respond speedily to developments as the scientific evidence becomes more robust. Rules for regulating conduct accordingly need to constantly evolve. The “golden met-wand” of law, to adopt Lord Coke’s phrase in the Case of Prohibitions, is not particularly well tuned to assist in such regulation other than at a level of generality. For instance, the law can dictate that leaving one’s house is prohibited in the absence of a “reasonable excuse”, but it cannot elaborate on reasonableness at a level of specificity that people desire and need. What is “reasonable” will depend on the circumstances, and such circumstances are individuated even in ordinary times and inevitably change in times of emergency as our understanding of the crisis evolves. A law which talks of reasonableness other than at a level of generality would rapidly become obsolete.

It is unsurprising accordingly that governments have had to “supplement” legal provisions with forms of soft law, such as guidance. There is nothing novel about this use of guidance. It is not “discretionary” other than in the sense that public authorities have discretion about whether or not to issue guidance and what form it should take and so on. Public authorities such as the police do not get to dictate the legal consequences that follow from the rules (though undoubtedly vague laws do give them practical power). To be vested with legal discretion is to be entitled to determine the legal consequences – and so a legal rule itself only contains discretion for instance if it prescribes that “an official is entitled to determine what is reasonable in the circumstances”. And indeed, it is desirable that guidance should be used in such a fashion – to complement but not displace law – as it acts as a guide for individuals in order so that they can understand the legal consequences of their actions. Understood in this way, guidance and other forms of advice provided by public authorities are not a threat to the rule of law, but rather positively advance it as I argue in Tax Authority Advice and the Public.

But there are limits to this proposition – for the rule of law to be advanced, the guidance should be clear (clarity), it should align with the underlying law (correctness) and it should be accessible to individuals (accessibility). To ensure that it follows these indicia, there should be a form of scrutiny (scrutiny) and ultimately people ought to be able to rely upon the guidance (reliability).

The use of guidance during the COVID-19 pandemic does not alter this framework, but it does throw issues around compliance with the framework into sharp relief. It has not gone unnoticed that public authorities have been constantly updating their guidance during the coronavirus. Questions as a result have been raised about the correctness of the guidance where it appears not to align with the underlying law; about its clarity and accessibility; and about its reliability where it turns out that the guidance is in fact incorrect. The strongest legal protection that individuals have where they have relied upon past iterations of guidance is that provided by the doctrine of legitimate expectations – and that is not an entirely comfortable place to be. Should a public authority believe that there is a mistake in its guidance, then it may be lawful to resile from it without falling foul of the doctrine (see Chapter 6 available here). As Greg Weeks has suggested in Soft Law and Public Authorities: Remedies and Reform at page 118, poorly drafted guidance places the risk on those who seek to rely on it. With law offering little protection, people must rely on the benevolence of the public authority. At several points in my book (e.g. at pages 157, 188, 192, 195 and 200) I argue that HMRC and public authorities generally should be comfortable with the idea of making mistakes and not feeling the need to go back and fix them. They should feel more liberated to offer assurances and not use obfuscating or qualifying language. Providing people with greater certainty as to the consequences of their actions is desirable from the perspective of the rule of law and treating people with dignity.

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Ultra vires the ECB and the implications for EU State aid law

State aid lawyers should take note of today’s decision from the Bundesverfassungsgericht, the German Federal Constitutional Court (BVerfG, Judgment of the Second Senate of 05 May 2020 – 2 BvR 859/15 -, paras. (1-237)). There the Court found that the ECB had acted beyond its competences in instituting the Public Sector Purchase Programme (a programme for the purchase of government bonds) as it failed to act in accordance with the principle of proportionality. What is striking about the case is that the German Court’s decision is at odds with a decision from the Court of Justice in which it was found that the ECB had not acted beyond its competences. In turn, the Bundesverfassungsgericht found that the Court of Justice’s decision also exceeded its competences.

The case is an example of a clash of legal jurisdictions. EU law is supreme as a matter of EU law. And the Court of Justice is the ultimate arbiter of EU law in the EU. But it does not follow that the Court of Justice’s interpretation of EU law reigns supreme over its interpretation by domestic courts in all circumstances as a matter of domestic law. It has been sporadically highlighted for instance by domestic courts that EU law cannot override fundamental constitutional principles or rights and must be interpreted in light of them in domestic law. But whilst noting this in theory, the courts have generally managed to avoid finding an actual clash (see for instance, Solange II, HS2, and the Bundesverfassungsgericht’s comments on Åkerberg). In the Bundesverfassungsgerichts decision today though a domestic court has (again) unequivocally found that their interpretation of EU law differs from that of the Court of Justice (see also the Czech Constitutional Court’s response to Landtova and the Danish Supreme Court’s response to Daniski Industri). The Bundersverfassungsgericht decided that the CJEU’s interpretation of EU law was beyond the bounds of an acceptable interpretation.

I mention this in the context of State aid as the episode mirrors my argument in an article published earlier this year in European Taxation entitled “The constitutional implications of an EU arm’s length principle”. In it, I argue that there should be no autonomous EU arm’s length principle found to exist in Article 107 TFEU, as discrete from any that has been incorporated in domestic law, as such an interpretation of EU law would run roughshod over the fundamental constitutional principle that taxes are levied by domestic legislatures. As with the Bundesverfassungsgericht’s decision today, it is not an acceptable interpretation of EU law. If you wish to receive a copy of this article, please email me (

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My new book on Tax Authority Advice is now out!

My monograph, Tax Authority Advice and the Public, published by Hart Publishing is now out! It is available in hardback and ebook here (where you can also find a sample chapter on remedies against HMRC). It is 264 pages long and contains a foreword from Nina Olson, Executive Director of the Center for Taxpayer Rights and former National Taxpayer Advocate of the US Internal Revenue Service.

The book builds on my doctoral work and is the culmination of six years work. At its heart, it puts forward a simple proposition: that tax authorities should assist taxpayers through the provision of advice. That proposition finds support in the rule of law, in that people ought to be aware of the legal consequences of their actions. More fundamentally it revolves around respect for human dignity – as people ought to be able to plan their lives, with the legal consequences being just one factor which they should be able to consider in the decision-making process. It follows that tax authority advice should be correct, clear, accessible and reliable. A system for advice should also provide a mechanism or mechanisms to ensure that the advice meets these criteria.

Against this background, the book investigates HMRC advice, highlights the pitfalls for taxpayers and practitioners as well as the potential remedies. Finally, the book assesses potential reforms which could be adopted in order to alleviate existing problems.

The book will be of interest to practitioners and academics interested in the interaction between tax administration and public law.

Tax Authority Advice and the PubliceApr 2020   |   9781509930531   |   264pp   |   Hbk   |    RSP: £80

Discount Price: £64

Order online at – use the code HE6 at the checkout to get 20% off your order!

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Forthcoming publication in the Law Quarterly Review

The assumption underlying the EU Competition Rules is that competition is good, intrinsically as it reflects economic liberty and/or because it produces desirable outcomes. Distortions to competition are accordingly to be regulated. As interventions by the State may create distortions, the State aid rules regulate the assistance that governments may provide to undertakings. But the task of the State aid rules is not to prevent or eliminate all distortions of the market by governments but to draw a line between those interventions that are legitimate and those that are not. Where that line should be drawn is a contested issue and has particular relevance today in the context of tax administration.

Drawing on administrative law, I argue in an article which is forthcoming in the Law Quarterly Review that the line should be drawn in a manner which accommodates ‘wrong’ decisions by public authorities. This has particular relevance today in the context of tax administration. EU Member State tax authorities are alleged to have given unduly favourable tax rulings to multinationals, such as Apple, Amazon and Fiat, in departure from the underlying tax rules and that this constituted State aid. The article argues that these cases should not be decided on the basis that a misapplication of the relevant tax rules alone, national or otherwise, should not be sufficient to give rise to State aid concerns. Rather what should be asked is whether the tax authorities acted contrary to administrative law when they administered the relevant tax rules. As applied in the context of the ongoing cases, this could still well mean that the tax authorities acted unlawfully. But critically, this proposition avoids putting the Commission in a situation such that it becomes a supranational tax authority.

The Law Quarterly Review operates a strict policy on accessing pre-published versions of articles so it cannot be posted on SSRN. If you wish to obtain a copy, please send me an email (

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Why would Ireland appeal the Fiat Decision?

I was alerted by Dr Tom O’Shea to the fact that Ireland is appealing the General Court’s decision in the Fiat tax ruling case (Case C-898/19 P [2020] OJ C 54/41). By way of background, the General Court agreed with the European Commission’s assessment that Fiat had been granted unlawful State aid by the Luxembourg tax authority.

It might seem strange to those looking in from outside that the appeal is being taken up, not by the country concerned, but rather by a separate country. What interest does Ireland have in cases taken against another country which, at least on the surface, appears happy to comply with the judgment? Of course, Ireland’s primary interest lies in respect of its own case against the European Commission in respect of the purported unlawful aid granted to Apple by the Irish Revenue Commissioners. This in turns brings us to an interesting question – how is it politically feasible in Ireland that the country is engaged in an appeal against an assessment that it is due €13billion euro, and so much so that it is now litigating cases on behalf of other countries? Considering the results of the most recent general election in Ireland, it certainly seems odd that the country continues to ask that it not receive tax revenues from a large multinational. In an article published a few years ago in the Bulletin for International Taxation, I tried to answer this question. The abstract for the article reads as follows:

“In this article, the author explores accusations levelled at the revenue authorities of Ireland and the United Kingdom in response to their treatment of multinationals, analyses the statutory scheme underpinning the powers of those revenue authorities and provides a preliminary proposition as to why subsequent developments have been so distinct.”

It is available officially here – though I can send individual copies to those without access to the IBFD journals (email me at:

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The constitutional implications of an EU arm’s length principle

A few months ago I wrote two blogs about the implications of the Court of Justice finding that there is in fact an EU arm’s length principle in the ongoing tax rulings cases. The content of those blogs has now morphed into a lengthier article which has just been published in European Taxation. The abstract for the article reads as follows:

“A question that has arisen in the cases concerning tax rulings that have been brought by the European Commission is whether or not the arm’s length principle is an autonomous standard under EU law. This article seeks to explain why there is no autonomous EU arm’s length principle, or, if there were one, that this would have profound constitutional implications. In short, an EU arm’s length principle would drastically undermine the fundamental constitutional principle that taxes must be levied with the consent of the national legislature.”

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The Good Law Project, Uber and the duty of confidentiality

The Good Law Project (‘GLP’) has legally attacked Uber from several perspectives. First, Uber was sued for a VAT invoice. Second, Jolyon Maugham QC submitted a claim to HMRC to deduct input VAT on an Uber journey. Third, the GLP started a judicial review case against HMRC claiming that HMRC acted unlawfully by failing to raise a VAT assessment against Uber. The particular assessment that the GLP argues ought to have been raised is what has come to be known as a ‘protective assessment’. It is not actually a legal term, but simply relates to HMRC making an ordinary assessment against a taxpayer but suspending the collection until litigation relevant to the assessment has come to an end. If HMRC is unsuccessful in the litigation, the assessment is withdrawn. The advantage of a protective assessment from HMRC’s perspective is that it avoids problems in respect of time limits, which would otherwise stop HMRC from issuing an assessment. For instance, section 73(6) provides that for a VAT assessment, the time limit is ‘(a) 2 years after the end of the prescribed accounting period; or (b)one year after evidence of facts, sufficient in the opinion of the Commissioners to justify the making of the assessment, comes to their knowledge’. In the event of such ‘evidence of facts’ arising, the time limit is extended to 4 years from the accounting period (section 77(1)(a)) and can be extended to 20 years in the case of deliberate non-compliance (section 77(4)).

On 19 November 2019, Mrs Justice Lieven handed down judgment in respect of a matter arising in relation to the judicial review (rather than on the substantive issues in the judicial review itself). This was whether HMRC could disclose to the GLP whether a protective assessment had been issued against Uber. Interestingly, it was HMRC that had applied for the order – fearing that information inappropriately disclosed would place HMRC in breach of its duty of confidentiality (enshrined in section 18 of the Commissioners for Revenue and Customs Act 2005) which could result in HMRC officials being imprisoned (under section 19).

Lieven J found that to disclose this information would not result in a breach of HMRC’s duty of confidentiality. The judgment itself stands immediately for a narrow proposition: that HMRC will not be held to have breached its duty of confidentiality in a situation where it discloses information to an opposing party during litigation. There are 5 points in particular which are of note in relation to the judgment.

First, the judgment did not concern standing [para 3]. If it did, it should be noted that standing for third parties is inextricably linked to the merits of the underlying case (see R v Secretary of State for Foreign and Commonwealth Affairs, ex parte World Development Movement Ltd). Thus whether there is a strong case or not that HMRC has acted unlawfully will be critical to determining the standing issue. Denying standing however would not stop the court from actually assessing the merits of the case against HMRC (as occurred in the Fleet Street Casuals case).

Second, the outcome – that the information would be shared only with the Good Law Project for the purposes of the ongoing litigation – in the case related to a specific order. That is why the argument of Uber that the case concerned a fishing expedition did not succeed – as HMRC indicated, by virtue of applying for an order, that it would answer the specific question [para 40].

Third, the case was decided on the basis of section 18(2)(c). This was different from Ingenious Media which related to section 18(2)(a). Interestingly, whilst section 18(2)(a) per the Ingenious judgment must be interpreted narrowly, section 18(2)(c) should be interpreted as meaning that disclosure is permitted in civil proceedings regardless of whether the proceedings relate to an appeal or a judicial review. To be honest, I had assumed that the provision was supposed to deal with the former rather than the latter as in the case of the former, the taxpayer concerned, by challenging HMRC, could be said to have impliedly waived their right to have their tax affairs kept private. It is probably worth noting that the Explanatory Notes to the legislation appear to support this assumption in so far as the examples used to highlight the scope of the provision are for the most part proceedings in respect of tax appeals and co-operation with other tax authorities [para 98 of the Explanatory Notes]). In any event, Lieven J further found that there is an element of discretion inherent in section 18(2)(c) in that HMRC may make a disclosure not just where to do so is ‘necessary’ for the purposes of the civil proceedings, but also where it is deemed by HMRC to be expedient to do so [para 36]

Fourth, the judgment of Lieven J placed great importance on the principle of open justice, against the background of which section 18(2)(c) ought to be read [paras 18-21, 35 and 39].

Fifth, the impact on the taxpayer in terms of the information that HMRC was asking for permission to disclose would be minimal [para 39]. Lieven J highlighted that a keen observer would be able to infer whether an assessment has been issued and in any event, the information only related to whether such an assessment had been issued:

‘The only information which at this stage HMRC want to disclose is whether or not they have made a protective assessment. If they have not, then that is the position as it stood in 2017 and was known to the public. If there is now a protective assessment, then that fact alone has a limited impact on taxpayer confidentiality, and is in any event a possibility which Uber have contemplated both in their contingent liabilities in the accounts, and in responses to the US Securities and Exchange Commission’ [para 42]

Beyond this judgment, it is worth considering how likely it is that the GLP will be successful in the substantive judicial review case (assuming that HMRC has not actually issued a protective assessment). For my own part, I think it unlikely the GLP would succeed in demonstrating that HMRC has acted unlawfully. In the absence of clear evidence of impropriety on the part of HMRC, for instance that HMRC was not taking action for political or economic reasons, GLP will have to resort to challenging the exercise of judgement by HMRC.

But in respect of judgement about how to go about assessing taxpayers, the courts defer to HMRC. Indeed, the requirement to defer in this instance is indicated by the wording of section 73 which provides that HMRC should only issue an assessment if ‘to the best of their judgment’ VAT is due. That deference is required is confirmed by Woolf J in Van Boekel v C&E whereby he explains that ‘the very use of the word judgement makes it clear that the commissioners are required to exercise their powers in such a way that they make a value judgment on the material which is before them‘. Accordingly, the decision is one for HMRC to make and the courts will not interrogate too strongly the reasons given by HMRC for (not) issuing a protective assessment. And in this respect HMRC’s Jim Harra has actually gone on record explaining why (at least in 2017, Q91) an assessment had not been issued against Uber:

‘I appreciate that there are time limits. We do not have absolute discretion to raise assessments. The law says we can only raise them if our best judgment is that the tax is due. We have been taking advice on these cases and, as Jon says, we have now fought and lost a significant number. Our advice is that the law in this area is reasonably clear unless and until it is changed, for example by one of the cases that you have mentioned. We raise assessments where we think we can, but we cannot just raise them we want to.’

When pressed on whether HMRC could take any action on the basis of the ongoing Aslam case (which concerns the employment law status of Uber drivers), Harra responded as follows:

‘The employment tribunal decision—which is under appeal, so we will see where that goes—relates to the status of the drivers and whether they are self-employed, workers or employees. I believe that tribunal has ruled that they are workers for the purposes of workers’ rights. I am not aware that the tribunal made any ruling regarding principal and agent, which is what is critical to VAT law, not the workers’ rights. Given that there is a Supreme Court decision, an employment tribunal would not be able to overturn that precedent anyway. We would have to see that go through the courts.’

Further, in response to the GLP’s pre-action protocol letter, HMRC explained its view that it could only issue a protective assessment when it had a firm view that tax was in fact due as a matter of law.

Given the requirement for deference, the task of the court on judicial review would merely be to consider whether these reasons logically led to the conclusion reached. An observer need not be convinced that HMRC’s approach is the best way of doing things, but simply that it had made a reasoned assessment and it is difficult to argue that HMRC has failed to do so on this occasion.

To their credit, the GLP seeks to deal head on with these issues in its claim against HMRC, which merits reading in full (though see in particular pages 28 to 35, available here). The GLP has sought to explain that Harra’s reasons are insufficient to lead to the conclusion reached because there are compelling reasons for issuing a protective assessment: the amount of tax potentially due and the Court of Appeal judgment in Aslam suggesting that in a VAT context Uber is a provide of transportation services. For the GLP, the issuance of a protective assessment requires only evidence suggesting tax is due which is far less stringent than HMRC’s interpretation that a firm view would be required.

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Access to justice and taxpayer protection

Whilst an exact definition of Parliamentary sovereignty is unlikely to find consensus amongst lawyers, one accepted tenet is that Parliament has legislative supremacy – it may enact any law which it chooses. Parliament for instance, adopting Ivor Jennings’ famous example, can legislate to ban smoking on the streets of Paris. Of course this law will have no effect, but Parliament can still say that it is a law validly passed.

To that end, where taxpayers find themselves worried about the scope of powers provided by Parliament to HMRC, this is the starting point for any argument. The best that a taxpayer can hope for is that the power granted to HMRC is incompatible with EU law – if that is the case it is void given that EU law has supremacy (given effect in the UK by virtue of the ECA 1972). If EU law cannot be invoked, then the protections available to taxpayers lie in judicial interpretation.

For instance, a taxpayer can argue that rights protected by the European Convention on Human Rights are breached by virtue of the exercise of some power by HMRC. Judges in that case are under an obligation to try to read the power in light of the ECHR – to try to give it an interpretation which is compatible with the ECHR. But if it is not possible to so do, then HMRC will not be acting unlawfully as it is simply Parliament’s will that HMRC should act in such a manner (see Human Rights Act 1998, s. 6(2)).[1] Remedying the incompatibility lies in the hands of politicians not justices. Of course the taxpayer can take the case to the European Court of Human Rights which can grant damages. But it still won’t mean that the law is invalid, nor that HMRC has acted unlawfully.

Practitioners, anecdotally at least (see here from 19.28), can attest to the fact that justices in the UK are very comfortable with dealing in arguments grounded in common law, thereby vitiating the need to focus solely on rights enshrined in EU law or given effect through Human Rights Act 1998. In the case of Unison, the Supreme Court arrived at the result that employment tribunal fees (as they had been calibrated) were unlawful as a matter of UK law on the basis of the constitutional right of access to the courts. The same result would have been arrived at, per the Supreme Court, through the invocation of EU law. Potential claimants were precluded from exercising their rights due to the level of the fees. For instance, before instituting a claim for unlawful dismissal, the claimant had to pay £1,200. The basic reasoning of the Supreme Court in striking down the secondary legislation went as follows:

  • access to the courts is a fundamental constitutional right;
  • legislation must be read in light of fundamental constitutional principles and rights;
  • where legislation appears to override fundamental constitutional principles or rights, the legislation should be given a narrow reading;
  • a narrow reading of the legislation in question is that the fees will be unlawful if there is a real risk that claimants ‘will effectively be prevented from having access to justice’.
  • there was such a risk present and so the fees were unlawful.

This reasoning most recently came to the protection of a taxpayer in the case of R (On the Application Of Haworth) v Revenue And Customs [2019] EWCA Civ 747. The case concerned follower notices and accelerated payment notices (on which I wrote a lengthy blog in 2017). A follower notice can be issued where the principles or reasoning in a judicial ruling (which can include a tribunal decision where no appeal has been made) would deny the purported tax advantages that a taxpayer has sought to claim (FA 2014, ss. 204-205). A follower notice forces a taxpayer to amend their return accordingly, if the relevant ruling came from the Supreme Court, or to enter into an agreement with HMRC to relinquish the purported advantage, if the ruling came from any other court or a tribunal (FA 2014, s 208). Failure to take such ‘corrective action’ renders the taxpayer liable for a penalty of up to 50% of the purported advantage. An accelerated payment notice can then be issued forcing the taxpayer to pay the disputed tax upfront (FA 2014, s. 219). Ultimately a taxpayer may go on to succeed in the underlying tax dispute for which the follower and accelerated payment notices had been issued. The combination of the notices however acts as a pretty severe deterrent – in particular with the addition of the 50% penalty – to a taxpayer who wishes to continue litigating a tax dispute with HMRC.

A follower notice and an accelerated payment notice had been issued to Geoffrey Haworth on the basis of reasoning in Smallwood v Revenue and Customs Commissioners [2010] EWCA Civ 778. But given the impact of the exercise of the powers to issue these notices, the courts adopted a narrow interpretation of HMRC’s powers. Thus, it was held that it cannot be the case simply that HMRC believes that it is more likely than not that the relevant ruling (to which the follower notice related) would deny the purported tax advantage. Rather HMRC must believe that principles or reasoning in the relevant ruling would [i.e. a positive assertion from HMRC] deny the advantage.

At paragraph 66 Lord Justice Gross put it as follows:

“given the draconian nature of these powers conferred on HMRC, it is right that they should be carefully circumscribed, not least – amongst other reasons – because of their impact on access to the courts and the rule of law”

A strong Court of Appeal (Rose LJ, Simler LJ and Underhill LJ) unanimously in the case of Locke agreed with the sentiments expressed in Haworth:

“I respectfully agree with the Court in Haworth as to the caution that must be used to ensure that the serious consequences for the taxpayer of HMRC’s power to issue follower notices and accelerated payments notices mean that that power must be kept within narrow bounds.” (para 51)

There the Court also found that HMRC’s reliance upon a judicial ruling could not be used to justify the issuance of a follower notice. The taxpayer had claimed for interest relief in his tax return, based upon an interpretation of ICTA 1988, s 362(1)(a). HMRC argued that the case of Eclipse 35 stood for the proposition that such a claim should fail as the taxpayer was not carrying on a trade. In an identical factual scenario, it was found in Eclipse 35 that the film partnership was not carrying on a trade. But the need to carry on a trade is an express requirement only for relief under s. 363(1)(b), whereas s. 362(1)(a) is silent on the issue. Ultimately, it was not decided in that case whether the taxpayers underlying that partnership could have fallen within the scope of s. 362(1)(a). Not only did the case of Eclipse 35 then not stand for the direct proposition that the taxpayer’s claim in Locke should fail, but also HMRC was not entitled to be ‘of the opinion’ (FA 2014, s. 204(4)) that it was a relevant judicial ruling (FA 2014, s. 205). The scope of what may be an ‘opinion’ of HMRC is necessarily narrow the Court of Appeal held, encompassing situations where ‘the judicial ruling is still determinative of the question whether the tax advantage arises, despite those factual differences’. But it does not cover an instance where the facts are identical, but the legal arguments are materially different: here, “whether the chosen arrangements fall within section 362(1)(a) or only within section 362(1)(b)” (para 51)

The basic principle of access to the courts, particularly as it is explained in the case of Unison, brings into focus the issue of judicial review. It is incredibly costly to bring a judicial review case (£154 to apply (though critically most JR applications are rejected on paper); £385 for a reconsideration at a hearing; £770 to proceed) and the general rule is that the loser pays the other sides costs (see here para 23.1.2). At the very least, even if you have a rock solid case against a public authority, it means you must pay £924. Meanwhile a case before the First-tier Tax Tribunal is generally cost neutral. The Tribunals, Courts and Enforcement Act 2007 which established the tribunal system in its current incarnation did not elect expressly to allow the First-tier Tribunal to hear judicial review cases (for arguments that the jurisdiction of the Tribunal ought to be expanded, see my 2018 BTR article). But one must wonder whether Parliament could be understood as having intended the current situation whereby judicial review cases must be instituted in the Administrative Court, given its exclusionary effect on victims of potentially unlawful public authority action. Could a different interpretation be adopted accordingly – one which did not impinge upon the fundamental constitutional principle of access to justice?

[1] Assuming no statutory discretion to act differently.

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When is a tax ruling an ‘intervention’ for the purposes of State aid?

For the purposes of Article 107 TFEU, State aid arises where:

  • there has been an intervention by the State or through State resources
  • the intervention gives the recipient an advantage on a selective basis
  • competition has been or may be distorted;
  • the intervention is likely to affect trade between Member States.

Most attention in respect of the ‘tax rulings’ cases currently being litigated is focused on the issues of ‘advantage’ and ‘selectivity’, the other conditions being taken as satisfied. Conor Quigley accordingly has pointed out, the ‘Commission appears to assume that any tax ruling is by its nature an intervention by the state’. But as he goes on to note:

“In principle, a tax ruling is merely an advance means of determining the allocation of profits that are to be subject to the tax assessment. The tax ruling is not an intervention by the state that derogates from any assessment. On the contrary, it is an integral part of the assessment procedure.”

Quigley is right to highlight the nature of a tax ruling and the fact that its interaction with the test for ‘intervention’ is not straightforward. In particular deeming a non-binding tax ruling to be an intervention raises serious tricky definitional and conceptual issues.

Taking a step back, tax authorities engage in a whole host of activities which are directed at ensuring that taxpayers comply with their obligations (and that taxpayers benefit from the rights granted by legislation). To that end tax authorities provide mechanisms by way of which taxpayers can communicate with them in order to receive answers to questions that they have: helplines, webinars, twitter etc. Tax authorities also proactively assist taxpayers for instance by sending out reminder emails and publishing guidance. At the same time, tax authorities also conclude legally binding agreements with taxpayers in respect of their rights and obligations. These activities all fall on a sort of ‘cooperation spectrum’, the most basic common feature being that the tax authority has given some positive assurance to the taxpayer as to the treatment of their tax affairs.

Tax rulings fall on the cooperation spectrum as they are a means for tax authorities to answer the questions of taxpayers – and they can be formal or informal, oral or in writing. Critically, not all tax rulings are legally binding. The effect of the ruling then will depend upon its nature.

A binding tax ruling might safely be understood as having legal effect when it is concluded and to that end, the date that the ruling is concluded should be taken as the date of intervention. But what about a non-binding ruling? The assumption that a non-binding tax ruling is an intervention for the purposes of the State aid assessment ignores the reality of tax administration and brings up critical questions in respect of both time and effect which do not arise in the case of a legally binding agreement between a tax authority and a taxpayer.

Sure in the case of a non-binding ruling the tax authority has given some positive assurance as to how a particular transaction or arrangement will be treated, but critically does not have binding effect. The intervention surely only has effect at a later time when the non-binding ruling is confirmed. But when is it confirmed? Is it when the tax return on which the ruling is based is submitted? Or is it the date that the tax return is accepted? If it is the date that it is accepted, is that the date that the deadline for the submission of returns has elapsed? Or is it the date that the opportunity for the tax authority to challenge the tax return has passed? If it is once the deadline for challenging the return has passed, then the issue becomes fraught with difficulty as different deadlines attach depending on the type the return that has been submitted (e.g. a tax return or a claim for relief), the knowledge of the tax authority (both from the return and from other sources) and the intention of the taxpayer (for instance whether unscrupulous or merely negligent).

Even beyond the issue of allocating a time to the intervention, how does one distinguish a non-binding ruling from the other activities that take place on the cooperation spectrum. Is it on the basis of the level of positive assurance that has been granted? If this is the case, the test for intervention should not be overly constricting as there are good reasons, most principally the rule of law (as I advance in my forthcoming book), as to why tax authorities should positively provide assistance to taxpayers. If the level is set too low then this would mean that a whole manner of taxpayer communications could give rise to State aid.

Further, it should be highlighted that taxpayers submit returns regardless of tax authority cooperation – for instance, Apple may well have submitted their tax returns in Ireland in the exact same manner without the tax authority assurances. Should there be an additional requirement of causation to that end (i.e. did the tax authority communication change the taxpayers’ action in respect of their tax return)? If there is not some additional causative requirement then the exact same outcome will be deemed State aid in one scenario but not in another purely because a tax authority has issued some assurance which had no impact on the taxpayer’s actions.

On the other hand of course if a non-binding ruling is not considered an intervention for the purposes of the State aid rules, then tax authorities would simply cease issuing binding rulings and instead focus efforts on granting favourable treatment through non-binding advice which would fall outside the scope of Article 107.

These issues are far from academic. The Apple case which is currently being litigated did not concern binding rulings, but rather informal rulings which informed the tax returns that were accepted by the Revenue Commissioners. Drawing the boundaries in respect of non-binding rulings will necessarily have an impact on the activities of tax authorities and caution must be urged.

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The doctrine of legitimate expectations in Aozora – normative underpinnings and the public interest in tax collection

Judgment of the Court of Appeal in the Aozora case ([2019] EWCA Civ 1643) was handed down on 8 October. The Court of Appeal upheld the decision of the High Court and thus dismissed the appeal. In the process however, Rose LJ made some interesting remarks in respect of the doctrine of legitimate expectation.

The background to the dispute is as follows. The taxpayer had been issued closure notices, the effect of which was to deny the taxpayer relief under section 790 of the Income and Corporation Taxes Act 1988 in respect of withholding tax imposed by the US. This was on the basis that, as HMRC contended, s. 793A of the Act operated to prevent the availability of the relief. The taxpayer however argued that HMRC guidance (in this instance HMRC’s international manual) gave rise to a legitimate expectation that it would be taxed in accordance with the guidance.

In this case, HMRC’s guidance set out the meaning of the legal provisions but then also, significantly, added that ‘At 1 April 2003 the only provisions to which s.793A applies is Article 24(4)(c) of the new UK/US DTA’. This was removed in 2011. Article 24(4)(c) of the UK-USA Double Taxation Convention is a very specific provision which the judge in the High Court read ‘several times, in a futile endeavour to understand its purpose’ but, in essence, is an anti-avoidance provision in respect of tax on dividends. It was this limitation to section 793A that the taxpayer was seeking to rely upon in the case as creating a legitimate expectation.

In dismissing the taxpayers appeal on similar grounds to the High Court, Rose LJ made three remarks about legitimate expectation claims.

First, that detrimental reliance is not determinative, nor it is irrelevant to establishing that a public authority acted unlawfully in resiling from a legitimate expectation. But in explaining this orthodox point, the Court revealed the normative reason why detrimental reliance is important in cases of substantive legitimate expectation, but not in procedural expectation cases (paras 34-44). The gist of the Court of Appeal’s approach is that detrimental reliance will be an important factor in cases where a substantive legitimate expectation is claimed, but not procedural expectation cases, because humans ought to be able to plan their lives in reliance on representations as to how their actions will be treated by a public authority. But for the representation of the public authority, a different action may have been pursued by person making the decision. Thus, substantive legitimate expectations claims ought to be protected because of the importance of human dignity – that humans ought to be treated as ends in themselves capable of making their own decisions affecting their lives.

That is not controversial – but in a tax case there is an argument that there are two actions that are relevant when considering the choices that the relevant persons have made. The first is the decision to engage, or to refrain from engaging, in a particular transaction which has taxing consequences. If a taxpayer has received a representation from HMRC as to how that transaction will be treated, then the Court of Appeal would suggest that HMRC should not resile from that representation. But the second is the decision which relates to a tax return. If a taxpayer receives a representation as to how a transaction will be treated after the event but before a tax return has been submitted (or even before the deadline for amendments to the tax return has passed), does that not factor into an individual planning their lives?

Further, is it necessary to only consider the ‘planning one’s life’ aspect of human dignity when explaining the normative underpinnings of the doctrine of legitimate expectations? The courts’ focus on detriment generally overlooks the possibility of developing the doctrine on the basis of what David Owens calls ‘authority interest’. The basic idea is that once a promise has been given, the control over that promise shifts to the promisee and so the promisee should control whether the promise is not given effect. The virtue of this position is that ‘human beings often want such authority for its own sake (not just to facilitate prediction or coordination)’.

Second, Rose LJ rejected the argument that once a representation capable of giving rise to a legitimate expectation has been identified, the burden shifts to the public authority to adduce evidence to the court showing some public interest in it being able to resile from the representation (para 46). This formulation however is misleading. Once a legitimate expectation is established, the burden shifts to the public authority to justify resiling from it (see para 37 in Paponette [2010] UKPC 32). Ultimately Rose LJ was trying to make a valid point: that there is a strong public interest in the collection of taxes due, and thus the taxpayer must be able to adduce extra evidence to persuade a court that the legitimate expectation should be given effect. Rose LJ is essentially making a distinction between the legal burden and evidential burden of proof.

Third, Rose LJ noted that a high degree of unfairness needs to be demonstrated, even outside ‘reasonableness’ claims (para 48 onwards). It is slightly confusing for the Court of Appeal to have used the term ‘unfairness’ given that Gallaher proposes that it is not a legal term – ‘Fairness, like equal treatment, can readily be seen as a fundamental principle of democratic society; but not necessarily one directly translatable into a justiciable rule of law’ (Lord Carnwath, para 31). But again the point that the Court is trying to make is uncontroversial and follows from the previous point. Once a legitimate expectation has been established, the onus shifts to the public authority to demonstrate that there is good reason for frustrating it. Given the significant public interest in collecting tax prescribed as due by Parliament, this is a ready-made ‘good reason’ for HMRC where the underlying representation contained a mistake of law. So a taxpayer will have to displace this ‘good reason’ by providing further reasons as to why frustrating the expectation should not be permitted. At the same time however, it should be made clear that a high degree of unfairness does not always need to be demonstrated in a legitimate expectations case. For instance, if HMRC simply failed to even consider the legitimate expectation, a claim against HMRC would not need a demonstration of a high degree of unfairness.

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