De-risking tax litigation
The global financial crisis has served to accelerate a trend towards tax authorities becoming increasingly aggressive in their approach to collection. The squeeze on public finances has triggered a battle to ensure every business pay its “fair” share in taxes. Tax disputes involving household names like Amazon and Starbucks have become front page news – subjecting big business to reputational as well as legal risk, which combined can move share price significantly. In short, tax has become a boardroom issue.
However, issues have also arisen in relation to individuals. Accelarated Payment Notices (or APNs) were first introduced in the UK in 2014 and enable HMRC to demand upfront payment of any disputed tax , prior to any decision by a tax tribunal. Notices demand full payment within 90 calendar days with no right of appeal. Some commentators have described APNs as a “shoot first, ask questions later” approach to tax issues.
Recognising that many individuals who had entered into certain tax arrangements in good faith and would not have the resources to challenge the tax authorities on their own, Pinsent Masons brought an innovative collective action to challenge the legality of using APNS.
Pinsent Masons’ market-leading tax team brought a Judicial Review of HMRC’s use of ‘Accelerated Payment Notices’ by the tax authorities against members of Ingenious Media film partnerships.
Ingenious Media has previously denied HMRC allegations that it is involved in a series of schemes that were not legitimate businesses but a means of avoiding tax. Several high-profile individuals, including prominent film and sports stars, are reported to have become involved in such schemes in good faith – and subsequently been subject to notices demanding that millions of pounds be paid to HMRC before any court is able to decide if tax relief obtained was legitimate.
Members of the film partnership were issued with bills worth hundreds of millions of pounds prior to any full review of their case, and denied the right to appeal.
By bringing the claim on a collective basis, representing a number of individuals, Pinsent Masons was able to ensure that the downside financial risk typically associated with group litigation was severely limited. Any individual bringing a claim would have faced huge demands upon their resources both in terms of time and cost. This route has alleviated that pressure.
It is very rare for the courts to give permission for a judicial review. Research by Thomson Reuters legal shows that less one 1 in 10 applications for permission are successful. In this case, however, the court agreed that there were genuine concerns over whether APNs were actually lawful and granted permission to bring the Judicial Review.
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