Territorial Limits to HMRC’s Investigatory Powers – High Court Test Case

The tax authorities have wide-ranging investigatory powers – backed up by penal sanctions – to require businesses and individuals to provide information that is reasonably required. However, in an important decision, the High Court has ruled that such powers are not extra-territorial and are confined to the UK.

The case concerned a businessman who had been served in Dubai with a notice under Schedule 36 of the Finance Act 2008, requiring him to provide information in respect of his tax affairs during a nine-year period. Although he was a British national, he argued that he was resident outside the UK and that HM Revenue and Customs (HMRC) had exceeded its powers.

Although Schedule 36 is silent as to its territorial reach, HMRC argued that it should be viewed as unlimited and that the man’s British nationality was determinative. In upholding the man’s judicial review challenge, however, the Court preferred his interpretation of the provision and overturned the information notice.

In finding that Schedule 36 has no application beyond the borders of the UK, the Court noted the importance of domestic authorities respecting the sovereignty of foreign states. If HMRC wished to extract information from those who are living abroad, it could rely on mutual assistance arrangements with relevant countries.

The prospect of people moving abroad to avoid tax investigations was more imaginary than real in that they would usually leave a financial footprint behind them in the UK. HMRC also had power to request information from third parties who remained within the jurisdiction.