2019: What lies ahead – Uncertain times linked to increased disputes and investigations
Economically and politically there will be uncertainty in 2019. Brexit, the Trump Administration’s trade disputes with China and others, and the World Bank’s forecast that growth will slow in all major advanced economies causing impending recession, are signed all major causes of that concern. Companies and high-net worth individuals worldwide should be considering how these events may play out and impact them from a legal perspective.
History shows that economic turmoil brings a rise in commercial disputes, regulatory litigation and investigations. When the economy is strong parties are inclined to settle, or even overlook, disputes. A quick, commercial solution can be pragmatic, particularly where there is an on-going relationship or if litigation would affect profitable work flows or be a distraction. When the economy is down, survival is threatened and businesses can take an embattled position, often in a Darwinian fight for survival. The 2007 to 2009 financial crisis resulted in a surge of litigation in the financial services sector and beyond, some of which is still continuing a decade on.
Almost all predictions for 2019 indicate a recession is coming. This will fuel litigation over who is at fault and who should pay for the consequences. A recent Citi Private Bank survey stated that roughly three-quarters of law firm leaders believe that demand for legal services will increase over the next year, while at the same time they expect the global economy to worsen or (at best) remain the same.
In the UK the outlook is perhaps even rougher due to the additional complication of Brexit. Businesses operating in the UK must be prepared to respond to structural change and disruption in the markets. It is an optimum time for them to strategically review their operations and commercial relationships. Options for resolving issues prior to litigation or arbitration being commenced should be explored, such as mediation or alternative dispute resolution mechanisms, in order to seek to avoid protracted formal legal proceedings. Restructuring scenarios should also be considered. Pre-litigation and litigation specialist law firms are best placed to advise commercial clients on strategic planning so that worst case scenarios can be avoided.
Despite contingency planning such scenarios can still be realised; there are always elements outside a business’ or client’s control. The most important decision a company or individual can make in advance is who they should call if disaster strikes. Specialist dispute resolution and investigations firms are the most experienced in helping clients through crisis situations. Those with their own team of forensic accountants and data experts are particularly well positioned as they provide a solution to both disputes and investigations matters. Smaller specialist firms have further advantages over bigger outfits; they are more agile with a reduced chance of conflict and can usually start acting straight away, which is crucial when matters are time sensitive.
An increase in regulatory investigations is another trend businesses and individuals should prepare for. In challenging economic times regulatory bodies are under increased pressure to deliver results; no stone is left unturned. Companies and individuals must ensure their businesses are in order. Proposing settlements or self-reporting could be beneficial for some; the new Profit Diversion Compliance Facility announced last week by HMRC aims to encourage multinational enterprises to align their transfer pricing policies through self-disclosure. Lawyers with strong relations with HMRC and experience in dealing with such enquires can be invaluable to achieving the best possible outcome.
Contentious regulatory disputes will continue. The SFO, FCA and HMRC among others, have shown themselves willing and able to take matters to court. 2019 has begun with the trial of four Barclays banking executives for fraud and other charges related to the last financial crisis brought by the SFO. Clients should turn to firms with specialist investigations teams who can guide them through such probes and minimise the financial, reputational and operational damage they can cause. Such firms often have former employees from these regulatory bodies working for them who can support clients through the investigation stage and onto trial stage if needed.
For 2019, it is hard to predict what will happen in the next week, let alone over the course of 12 months. This uncertain environment is very challenging for businesses. To ensure they are in the best possible position to achieve their commercial aims over the next year, businesses must plan ahead. Time spent now on researching the leading dispute resolution and investigations law firms to call in a crisis, and seeking expert legal advice in advance of disputes or investigations, may be the best investment a business makes in the year ahead.
An Assessment to Tax is never ‘stale’, but it might be out of date: HMRC v Tooth
This article briefly discusses the key points arising out of the decision of the UK Supreme Court in HMRC v Tooth  UKSC 17. The case considered (1) whether a discovery assessment could become “stale” and (2) the meaning of the phrase “deliberate inaccuracy”.
VATA 1994 s.47, Agency, Onward Supply Relief, & Double Taxation
On 12 July 2021, the First-tier Tribunal (Tax Chamber) (“FTT”) released its decision in Scanwell Logistics (UK) Limited v HMRC  UKFTT 261 (TC), rejecting the taxpayer’s claim for onward supply relief (“OSR”).
Whilst OSR is now limited, post-Brexit, to goods imported into Northern Ireland for onward supply to the EU, the FTT’s discussion of agency under section 47 of the Value Added Tax Act 1994 (“VATA”) is of broader interest.
The case serves as a reminder of the significant financial consequences that can result from errors in tax planning, as Scanwell was ultimately held liable for £5.7 million in unpaid import VAT despite the fact that the imported goods almost immediately left the UK (which, if properly planned, could have meant Scanwell was relieved from liability to import VAT).
Draft Finance Bill 2022—tax avoidance measures
Helen McGhee, senior associate at Joseph Hage Aaronson LLP, considers the draft Finance Bill 2022 clauses published on 20 July 2021 in relation to tax avoidance and recent updates to the tax avoidance regime.
Getting Closer: A Global Minimum Tax on Corporations
On 1 July 2021, US Treasury Secretary Janet Yellen announced that countries representing over 90% of global GDP had agreed to a global minimum tax on corporations (“GMCT”). The GMCT seeks to put a floor on tax competition on corporate income through the introduction of a minimum corporate tax of at least 15%. Whilst certain elements give rise to positive expectations, some caveats should be noted. Much will depend on (1) the outcome of future political negotiations and (2) the detail of the drafting at international and national levels.
The DBKAG & K (CJEU) decision: an opportunity for investment funds?
On 17 June 2021, the European Court decided the joint cases K (C-58/20) and DBKAG (C-59/20) regarding whether the supply of certain services constituted the “management of special investment funds”, benefiting from the VAT exemption enshrined in Article 135(1)(g) of Council Directive 2006/112/EC.