JHA consultant Simon Whitehead has edited the seventh edition of The Tax Disputes and Litigation Review and has also contributed the UK chapter to this guide. This book is published by The Law Reviews and is available online and in print.
The objective of this book is to provide tax professionals involved in disputes with revenue authorities in multiple jurisdictions with an outline of the principal issues arising in those jurisdictions. In this, the seventh edition, we have continued to add to the key jurisdictions where disputes are likely to occur for multinational businesses.
Each chapter provides an overview of the procedural rules that govern tax appeals and highlights the pitfalls of which taxpayers need to be most aware. Aspects that are particularly relevant to multinationals, such as transfer pricing, are also considered. In particular, we have asked the authors to address an area where we have always found worrying and subtle variations in approach between courts in different jurisdictions, namely the differing ways in which double tax conventions can be interpreted and applied.
The idea behind this book commenced in 2013 with the general increase in litigation as tax authorities in a number of jurisdictions took a more aggressive approach to the collection of tax, in response, no doubt, to political pressure to address tax avoidance. In the United Kingdom alone we have seen the tax authority vested with broad new powers not only of disclosure but even to require tax to be paid in advance of any determination by a court that it is due. The provisions empower the revenue authority, an administrative body, to compel payment of a sum, the subject of a genuine dispute, without any form of judicial control or appeal.
Over the past year, the focus on perceived cross-border abuses has continued with European Commission decisions against past tax rulings in Belgium, Ireland and Luxembourg, and the BEPS Project reaching a crescendo in the announcement of a 'diverted profits tax' to impose an additional tax in the United Kingdom when it is felt that a multinational is subject to too little corporation tax even in an EU context and a digital services tax in the United Kingdom introducing provisions that appear in principle to pre-empt the Commission's action in the area. The general targeting of cross-border tax avoidance now has European legislation behind it with the passage last year of the second Anti-Tax Avoidance Directive. The absence of much previous European legislation in direct tax has always been put down to the need for unanimity and the way in which Member States closely guard their taxing rights. The relatively speedy passage of this legislation (the Parent–Subsidiary Directive before it took some 10 years to pass) and its restriction of attractive tax regimes indicates the general political disrepute with which such practices are now viewed.
These are, perhaps, extreme examples, reflective of the parliamentary cycle, yet a general toughening of stance seems to be felt. In that light, this book provides an overview of each jurisdiction's anti-avoidance rules and any alternative mechanisms for resolving tax disputes, such as mediation, arbitration or restitution claims.
We have attempted to give readers a flavour of the tax litigation landscape in each jurisdiction. The authors have looked to the future and have summarised the policies and approaches of the revenue authorities regarding contentious matters, addressing important questions such as how long cases take and situations in which some form of settlement might be available.
We have been lucky to obtain contributions from the leading tax litigation practitioners in their jurisdictions. Many of the authors are members of the EU Tax Group, a collection of independent law firms, of which we are a member, involved particularly in challenges to the compatibility of national tax laws with EU and EEA rights. We hope that you will find this book informative and useful.
Joseph Hage Aaronson LLP’s (JHA’s) contentious tax team has contributed to the recently released Chambers & Partners Tax Controversy guide 2019. This publication provides expert legal commentary on key issues for businesses and covers the important developments in the most significant jurisdictions worldwide.
JHA’s contentious tax team uniquely brings together in one firm specialist tax QCs, experienced tax disputes solicitors, and forensic accountants. The team’s close client relationships enable it to be involved in some of the most high-value and complex corporate tax related cases. JHA’s selection as the UK contributor to this guide, as well as the top tier rankings achieved by the firm every year since its inception in both the Chambers & Partners and Legal 500 directories, are a testament to its practitioners’ talent and experience as well as its unique integrated approach.
The chapter was written by Graham Aaronson QC, Ray McCann, Michael Anderson and Simon Whitehead and can be viewed as a PDF or on the Chambers website.
The recent judgment in Podstreshnyy v Pericles Properties Ltd [2019] sends a clear message as to how seriously the UK courts take the deliberate breach of disclosure orders made in the context of freezing orders.
In Podstreshnyy, the claimant claimed against the defendants for rent received and said to be held on trust for the claimant, who had employed the defendant agency as its letting agent. In February 2018 freezing injunctions were granted requiring the defendants to disclose details of their assets in England and Wales. The defendants were ordered not to dispose of, deal with or diminish the value of any of their assets to the value of £100,000. Judgment was subsequently entered against the contemnor in the sum of £112,452.40.
Committal applications for contempt were submitted when the contemnor failed to provide disclosure of information, in breach of the Court orders, and failed also to disclose ownership of three properties. The application alleged that the contemnor had breached the Court’s orders by marketing two of the three properties for sale without both notifying the claimant of the existence of the properties and of the attempts to sell them. The applicant also alleged that the contemnor failed to make an interim payment of costs of £5,000 and made withdrawal of more than £60,000 from her accounts during the period of the freezing orders.
The Court held that there had been a clear failure by the contemnor to disclose ownership of the three properties, sources of income and bank accounts, or to make an interim payment of costs in the terms ordered. While the Court was unconvinced that steps taken to market properties amounted to dealing within the terms of the freezing order - the marketing steps had fallen short of formal acts, such as the appointment of solicitors or the sending out of contracts for sale – and held that a failure to make an interim payment of costs as ordered was not obviously contempt, the contemnor’s withdrawal of £60,000 was, however, significant in the context of the amount of the claimant’s claim.
In its judgment, the Court outlined the guidelines for the imposition of a custodial sentence: it upholds the authority of the court and underlines the significant public interest in ensuring that court orders are obeyed. Of the sanctions available, and while imprisonment was always the last resort, the contemnor’s breaches had been serious and deliberate, with the intention of depriving the claimant of the money to which he was entitled. Taking account of mitigating factors, which included increased disclosure, an admission, an apology, a willingness to co-operate and the care of a dependent child, the Court concluded that a custodial sentence of nine months was appropriate.
The message from the Court following this case is clear: if a freezing order of the Court is breached, a contemnor does so at his or her own risk and may face imprisonment for doing so. After all, a contempt of court is, in the words of Mr Justice Norris in 2015, “not a wrong done to another party in the litigation. It is an affront to the rule of law itself and to the court”.
In a recent interview, the Director of the Serious Fraud Office (SFO), Lisa Osofsky, has given her support to the continued use of Deferred Prosecution Agreements (DPAs) as an effective tool in the fight against economic crime.
DPAs, which are essentially American-style corporate plea bargains, came into use in the UK in 2015. They allow companies who admit wrongdoing to reach an agreement with the prosecutor, under the supervision of a judge. That agreement allows the prosecution to be suspended for a defined period provided the organisation meets certain specified conditions, which usually include fines and monitoring, avoiding the additional damage a conviction would likely bring.
DPAs have come under criticism since their introduction in the UK as some say they enable companies to engage in and admit criminal conduct yet avoid prosecution. Also there have been questions asked as to how effective a tool DPAs are to incentivise companies to self-report, as the UK lacks the strong deterrents to economic crime available in the US.
Osofsky claims that, since their introduction, DPAs have been effective in ensuring companies ‘clean up’ their act. For example, in 2017, two major companies, Tesco and Rolls-Royce, agreed DPAs with the SFO, paying £129 million and £500 million respectively.
However, since Osofsky took over at the SFO in September 2018 a re-trial of former Tesco directors has collapsed and an investigation into individuals linked to the Rolls-Royce case was closed. Despite this she claims that even if there is not enough evidence to prosecute individuals over the misconduct outlined in DPAs, they still serve an important purpose: ‘Corporates (are run) by individuals. But how do you reprimand, discipline, punish bad corporate behavior…? I see (cases against companies and individuals) as two very different things and I think the role of the DPA is to make sure that the company engages with prosecutors, comes forward and cleans up its act.’
Osofsky declined to comment on whether some of the cases she inherited will be closed in the near future. These include investigations into, among others, Rio Tinto, Airbus, British American Tobacco, Tata Steel and ENRC. She did however say that for cases to be impactful they need not involve large companies and that any company successfully prosecuted is progress.
JHA specialises in investigations, litigation and dispute resolution. We bring together leading barristers, solicitors and forensic accountants, to support clients at every stage and have deep experience of working with regulators including the SFO, FCA and HMRC.
Originally printed in The Legal Business Magazine.
JHA is pleased to feature in Legal Business Magazine, in an article on the rise of disputes specialist firms
“A newer entrant gaining attention is Joseph Hage Aaronson (JHA). Established in March 2013, the tax and litigation specialist’s primary selling point is its prominent integration of barristers and solicitors on client-facing matters. At present, the firm can boast the services of Daniel Margolin QC and Tom Beazley QC, who are expected to collaborate with solicitors and be present from the very first client meeting.”
Continue reading on The Legal Business, Boutiques: Highly Evolved.
Last month the London Court of International Arbitration (LCIA) released its 2018 annual casework report. This showed a notable increase in the proportion of cases relating to banking and finance: up by 5%, from 24% to 29%. Although this can partly be attributed to the continuing growth in the popularity of arbitration, there are other specific reasons why this is happening in the banking and finance sector.
First, with the continued geographical widening of the financial markets, there has been an increase in both the number of financial products available generally, and also in the demand for those products from emerging markets. Taken together, the need for more certain prospects of both justice and enforceability across national borders should things go wrong become correspondingly greater and as such more arbitration clauses are being written into the underlying contracts. For transactions involving emerging markets particularly, an arbitration clause is often favoured where a party or asset is in a jurisdiction where the courts are perceived as less reliable and/or no agreement can be reached on the choice of national court.
Second, the increasing complexity of financial products, and therefore the corresponding increasing complexity of the cases involving them, makes arbitration a popular choice. The disputes that are arising require a deep understanding of both the financial products and the financial markets involved. There is concern that some national courts may have an insufficient level of judicial experience and proficiency for such disputes, especially as they can affect global markets (i.e. regarding industry standard contracts such as the ISDA Master Agreement). Arbitration allows parties to appoint arbitrators with the relevant experience for the matter in question, sidestepping this concern.
Third, political developments mean that the advantages of international arbitration have a greater premium compared to the court-based alternative. For example, uncertainties surrounding Brexit have been cited as a reason why international arbitration is increasingly being chosen by the London based financial services sector as their favoured dispute resolution mechanism. Currently, the UK is a member of the EU and subject to the EU Judgments Regulation 1215/2012. The EU Judgments Regulation provides a framework for the recognition of court judgments issued in one EU member state (i.e. the UK), in the courts of another member state. However, with the UK’s impending exit from the EU there is perceived uncertainty over the mechanisms by which the continued reciprocal recognition of court judgments between the UK and the EU will continue. Arbitration avoids that problem, relying instead on the New York Convention 1958 for both the recognition and enforceability of awards – there is still no convention that provides for the reciprocal recognition and enforcement of court judgments with anything remotely close to the widespread acceptance of the New York Convention for arbitral awards.
Due to the increasingly globalised world in which we live, where there is political and economic uncertainty not only in emerging markets but also in well-established financial centres like London, it is likely that the LCIA’s 2019 annual casework report will show when it is released next year another uptick in the proportion of cases from the banking and finance sector.
JHA is a specialist dispute resolution firm, with a track-record of advising clients from the banking and finance sector, as well as many other sectors. Our experts have led on cases under a variety of different institutional rules including the LCIA, ICC and ICSID Rules, in many different seats and subject to various governing laws.
A recent freedom of information request has revealed that HMRC is currently investigating several cases under the corporate criminal offence of failure to prevent the facilitation of UK tax evasion.
This corporate criminal offence, which was introduced in the Criminal Finances Act (CFA) 2017, places a positive obligation on companies to implement procedures to prevent the facilitation of UK tax evasion. While this offence applies to all companies, it is particularly aimed at banks, accountants and law firms, who are often regarded as unwitting ‘enablers’ of this type of crime.
Under section 45(1) of the CFA a company ‘is guilty of an offence if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with (the company)’. A company can defend itself if it can show the tax evasion facilitation offence was committed despite the company having had in place such prevention procedures as it was reasonable in all the circumstances to expect the company to have in place; or it was not reasonable in all the circumstances to expect the company to have any prevention procedures in place. The ‘failure to prevent’ offence can be punished by unlimited fines and orders for confiscation of assets.
The criminal investigations reported by HMRC show that some action is now being taken regarding prosecuting companies for financial crime, something the UK has been comparatively ineffective at in the past and is under increasing pressure to step up, as shown in the recent report by the Treasury Committee on anti-money laundering and anti-financial crime regime in the UK. The launching of these investigations by HMRC potentially marks a first step in the direction of pursuing effective prosecutions in this area and shaping the landscape of corporate liability in the UK in general.
It is not known how long these cases will take to investigate and it is likely that it will be many more months until we see the first prosecution in the UK for this offence. However, it is likely that the number of investigations brought under this legislation will increase over the next few years and companies should be prepared.
Joseph Hage Aaronson LLP’s (JHA’s) contentious tax team has contributed to the recently released Chambers & Partners Corporate Tax guide 2019. This highly regarded publication provides expert legal commentary on key issues and is considered one of the most comprehensive guides to this area of law for businesses worldwide.
As the only firm ranked as band one in the UK for Tax: Contentious expertise by Chambers, JHA is delighted to have contributed to this internationally renowned guide. JHA’s chapter includes sections on: the taxation of inbound investments; the taxation of non-local corporations; the taxation of foreign income of local corporations; anti-avoidance and BEPS, among other key features of UK corporate tax law.
JHA’s contentious tax team uniquely brings together in one firm specialist tax QCs, experienced tax disputes solicitors, and forensic accountants. The team’s close client relationships enables it to be involved in some of the most high-value and complex corporate tax related cases. JHA’s selection as the sole UK contributor to this guide, as well as the top tier rankings achieved by the firm every year since its inception in both the Chambers & Partners and Legal 500 directories, are testament to its practitioners talent and experience as well as its uniquely integrated approach.
The chapter can be found here on the Chambers website.
Joseph Hage Aaronson LLP’s (JHA’s) contentious tax team has achieved the highest possible rankings in both the Legal 500 and Chambers & Partners UK guides.
These legal directories are the most highly regarded guides to the legal market in the UK and internationally due to their rigorous independent research process, which includes client and peer feedback.
This is the fifth consecutive year JHA has achieved these rankings, meaning that the firm has not left the top tier for contentious tax since its inception in 2013. JHA is the first firm to ever have gained this accolade of longevity in this practice area.
In the Chambers UK guide JHA is once again the only firm rated as band one in the UK for Tax: Contentious expertise. Chambers says “The firm’s technical ability is second to none and they look to achieve practical results for clients”. The team is praised for its “outstanding service” and described as “excellent, hard-working and easy to work with.” JHA also achieves four individual rankings with Graham Aaronson QC, Paul Farmer and Simon Whitehead ranked in band one and partner Michael Anderson recognised in band two.
The Legal 500 UK ranks JHA as a top tier firm for tax litigation and investigations. The guide highlights the firm’s “dominant position in the UK tax disputes market” enabled by its “concentration of ‘star individuals’.” Seven JHA lawyers are highlighted with Graham Aaronson QC and Simon Whitehead selected for the exclusive leading individuals list. JHA is the only firm have two individuals recognised here.
JHA’s continued success in both guides is testament to the firm’s dominance in the contentious tax space. Despite only recently celebrating its fifth birthday the firm is out performing long-established international heavyweights.
Founder partner Graham Aaronson QC commented, “Our close client relationships enable us to be involved in some of the most high-value and complex cases in contentious tax. Our rankings are testament to our uniquely integrated approach, which brings together the most relevant and experienced solicitors and barristers to set the case strategy that best meets each client’s needs. We then pursue that strategy with a carefully chosen team of lawyers and, where appropriate, forensic accountants.”
Founded in 2013, JHA has a multidisciplinary team of barristers, solicitors, forensic accountants, researchers and paralegals. The firm works to deliver the best results for clients, whether through a litigation, arbitration, mediation or settlement process.
View the full commentary on our team and lawyers by Chambers UK here and the Legal 500 UK here.
Ray McCann, Partner at Joseph Hage Aaronson and Deputy President, Chartered Institute of Taxation, gave evidence on the tax measures contained in the November 2017 Budget to the Treasury Select Committee on 5 December 2017.
