Tax cases

News

Tax cases

Legal privilege

The House of Lords has reaffirmed the importance of legal professional privilege in the much anticipated Three Rivers case, which is one of several relating to the collapse of BCCI. The question in this case was whether the correspondence between the Bank of England and its solicitors, Freshfields, about the Bank's statement to the Bingham inquiry into the collapse of BCCI was covered by legal professional privilege.

The Court of Appeal took a narrow view of the privilege attaching to legal advice, saying that it was available only in respect of communications about the legal rights and obligations of the client. The House of Lords has overturned this, saying that provided the advice was given within a relevant legal context it was protected by legal professional privilege. Lord Scott of Foscote gave a very strong defence of the fundamental principle of legal professional privilege:

'… it is necessary in our society, … that communications between clients and lawyers, whereby the clients are hoping for the assistance of the lawyers' legal skills in the management of their (the clients') affairs, should be secure against the possibility of any scrutiny from others, whether the police, the executive, business competitors, inquisitive busy-bodies or anyone else.'

Guy Brannan, the head of tax at Linklaters, said that the decision restored the principle of privilege to the position prior to the Court of Appeal judgment. This was no surprise, as the House of Lords had already indicated its dissatisfaction with that decision. He did not, however, think that it caused difficulties for the new provisions requiring the client to disclose details of a tax avoidance scheme. He said that although the communication is privileged, the details of the scheme are purely factual, and are therefore disclosable. The protection given by the continuum of legal advice has to stop at some point, and when the client acts on the advice that action is not privileged.

(Three Rivers District Council v Bank of England [2004] UKHL 48.)

Grass carpet

A Ltd provided leisure facilities, in particular synthetic five-a-side football pitches. In constructing such pitches, the company incurred capital expenditure on excavation, infilling, draining, geotextile material and sand filled synthetic grass carpet. The carpet lasted for between five and nine years, depending on use. A Ltd claimed capital allowances on the expenditure. The Revenue did not allow the claim, saying that such expenditure was excluded by CAA 1990, Sch AA1 para 2. This provided that expenditure on the provision of plant or machinery did not include expenditure on any structure or other asset which fell within column 1 of Table 2b. Item G of column 1 specified any structure not within any other item in the column. Para 5(1)(c) defined structure as a fixed structure of any kind other than a building. Column 2 of Table 2 listed expenditure which was unaffected by Sch AA1, and included in item 1 expenditure on the alteration of land for the purpose of installing plant or machinery.

A Ltd appealed. The Special Commissioner allowed the appeal, stating that the relevant item was the carpet only, not the pitch as a whole. Item G did not exclude expenditure on the carpet, and the allowances for expenditure in the land were allowed by item 1 of column 2. The Revenue appealed to the Inner House.

The Inner House ruled that the Special Commissioner was entitled to reach the conclusion that the relevant item was the carpet, and the Revenue had not proved that the Special Commissioner's decision was inconsistent with the facts.

Further, the pitch could be regarded as both the setting and the means by which A Ltd traded. In one way, the trade was the provision of the setting, in another, the carpet was the plant by which the trade was carried on. Once the plant was used in the trade, it was irrelevant that it was also the setting. The Special Commissioner's decision was correct.

The Revenue's appeal was dismissed.

(CIR v Anchor International Ltd, Extra Division of the Inner House of the Court of Session as the Court of Exchequer in Scotland, 22 October 2004.)

Valid notices

An accountant received a notice under TMA 1970, s 19A, demanding production of certain documents relating to his business and personal affairs, including a balance sheet.

The Special Commissioner rejected his appeal against the notice. Penalty notices under s 97(1)(a) and (b) were then served on him in respect of his failure to comply with the s 19A notice. He appealed against these to the Special Commissioner, who dismissed the appeal. The taxpayer appealed to the High Court, on the ground that it was unlawful to require him to produce a balance sheet, the penalty notices were flawed, and his rights under various articles of the European Convention on Human Rights had been breached.

Mr Justice Moses said that it was no longer open to the taxpayer to appeal about the balance sheet issue since the Special Commissioner had dealt with this. He also said that there was nothing unlawful in the notices. Furthermore, none of the taxpayer's human rights had been violated.

The taxpayer's appeal was dismissed.

(Murat v CIR, Administrative Court, 25 October 2004.)

Issue: 3984 / Categories: