Overseas Chambers of Peter Harris

Maison de la Boucterie
Rue de la Boucterie
Saint Saviour
Jersey, JE2 7ZW

Information exchange. The Constitutional implications of the Supreme Court's judgment in Ingenious and Dave Hartnett's fall from judicially acceptable grace.

January 12th 2017

Tax is as usual a constitutional matter, and any perceived injustice or breach of the taxpayer's fundamental rights has always been a source of revolution - our Civil Wars being no exception-  and of a nature to engender assertions of sovereign independence, the Boston Tea Party being another. It might then have appeared perfectly reasonable to the British that the American colonies upon the eastern seaboard make some contribution to the cost of defending them from the influence of the French and the then more extensive Louisiana. However, the outcome of that assertion of fiscal independence decided the British to have been overbearing and wrong.

Insomuch as the current echanges of information might appear perfectly normal to a populist unfamiliar with the underlying ramifications as to confidentiality, the tax issue has not gone away.

Ingenious Media Holdings

So what happened in Ingenious?  Basically the Permanent Secretary for Tax  to HMRC, Dave Hartnett, tried to obtain information that he thought certain journalists might have had on a particular taxpayer or more generally by tempting them with juicy titbits of otherwise confidential information "off the record". The manner in which the excuse produced for such behaviour was treated as child-like, perhaps Lady Hale's contribution, merits no further amplification.

However, having no truck at all with HMRC's arguments attempting to dilute its absolute duty of confidentiality Lord Toulson, readng the unanimous judgment of his peers  said in rejecting some pettyfogging by the Revenue lawyers :

"27.              The same principle applies whether or not the duty of confidentiality is contractual. It applies equally where the person or body owing a duty of confidentiality holds a public office or is a public body or is performing a public function, subject to any contrary statutory provision.

28.              It is a cardinal error to suppose that the public law remedies and principles associated with judicial review of the exercise of administrative power, developed by the common law from the ancient prerogative writs, occupy the entire field whenever the party whose conduct is under challenge holds a public position. It is important to emphasise that public bodies are not immune from the ordinary application of the common law, including in this case the law of confidentiality. The common law is multi-faceted and remains the bedrock of the English legal system.

29.              Having rejected the view that section 18(2)(a)(i) should be interpreted as making the disclosure of information about individual taxpayers a matter for the discretion of HMRC officials, subject only to a rationality control, I disagree with the view of the lower courts that it was not for them to approach the disclosures made by Mr Hartnett as if they were primary decision makers. In accordance with ordinary principles, the question of breach of confidentiality is one for the court's judgment."

He then dispatched the "Off the record" argument to the ashtray reserved for Kipling's Clerk's baccy, as well as consigning Henry VIII and his progeny of clauses to the common law history books:

"21.              A similar principle can be seen in the courts' approach to the interpretation of powers delegated under a so-called Henry VIII clause. In R (Public Law Project) v Lord Chancellor [2016] 3 WLR 387, para 26, Lord Neuberger of Abbotsbury PSC, with the agreement of the other members of the court, cited with approval the following passage in Craies on Legislation, 10th ed (2012), edited by Daniel Greenberg, at para 1.3.11:

"as with all delegated powers the only rule for construction is to test each proposed exercise by reference to whether or not it is within the class of action that Parliament must have contemplated when delegating. Although Henry VIII powers are often cast in very wide terms, the more general the words used by Parliament to delegate a power, the more likely it is that an exercise within the literal meaning of the words will nevertheless be outside the legislature's contemplation." (Emphasis added)".  Not by me.

Good thing too! Hardly the right approach to the English Common Law duty of confidentiality. Let alone fairness and equity.

The cheek of the executive as to overriding common law rights, and they are, by elasticating general terms of a statute to cover all such use of statutory tax entitlement as peccadilloes is something that they appear to have taken on board from their contacts with their Lycra-clad fellow vélocipedistes at the OECD symposium of doubting Thomases in Paris.

HMRC's arguments in front of a court can be quite facile and childish at times, especially when in the wrong, hence the judicial rebuke from their Lordships and her Ladyship at his paragaph 31, "every schoolchild knows that...":

"30. "Off the record" is an idiom and like many idioms can bear different shades of meaning. It may, for example, be intended to mean "strictly confidential" or it may be intended to mean "not to be directly quoted or attributed". The judge found that Mr Hartnett understood it to mean that the interview was to be a "background briefing", intended to influence the journalists' views and what they wrote about matters affecting HMRC but not to be published. There has been no appeal against that finding, but nothing in my view turns on what precisely Mr Hartnett intended.

31. As a matter of principle, a disclosure of confidential information may sometimes be permissible on a restricted basis. (In the case of W v Egdell, previously cited, the doctor was lawfully justified in passing on his report to those who had responsibility for the plaintiff's care, whereas it would not have been lawful to pass it to someone who had no such responsibility.) But an impermissible disclosure of confidential information is no less impermissible just because the information is passed on in confidence; every schoolchild knows that this is how secrets get passed on. The references by the courts below to the nature of the interview leave me in some doubt whether they had a clear regard for the distinction." Enough said on child-like logic, I think.

Coming back to the  statement of law that "The common law is multi-faceted and remains the bedrock of the English legal system".

No one has yet questioned whether the executive's powers to actually exchange information automatically on the scale envisaged is common law compliant.  It is not "covered" by any prerogative right. It seems in fact to be unconstitutional in the fundamental sense of the term, as the common law is here in its very nature and essence "constitutional". Following on from the Bill of Rights designation of the counsellors of the previous Stuart scumbags (I merely use Dave Hartnett's reported terminology as a cricket bat) as "evill", it is clear that there is a constitutional vilificaton of such practices. The common law is, in my submission  a bulwark against executive missbehaviour and does not admit any contrary extension of prerogative rights into the hands of the executive without at the very least a specific statute, as opposed to a Henry VII clause.

Hold that thought. Bear in mind that the French Sénat expects their current détaché at the OECD to report back to them regularly. It is not an informal afternoon tea and biscuits arrangement ....

During the French Senatorial Committee on tax evasion's visit to London in 2012, Dave Harnett met with the Dominati /Boucquet group and the only report available of that meeting at the French Embassy, a place of territorial significance, follows. It seems to indicate a discussion limited to a comparison between the French and the British concepts of a general anti avoidance rule. What is curious is that the British individuals present in Knightsbridge, Richard Murphy, John Christensen, and incidentally Dave Hartnett were not appraised of the significant differences and drawbacks of the French abus de droit mechanism. I should point out that I was one of the individuals sitting on the Jersey Finance group which met with the Mission: they were singularly negatively aggressive, as they evidently had been pre-briefed by the French equivalents of Tax Research and Tax Justice and were therefore in a self inflicted degree of ignorance. their questions were vague and therefore did not give rise to any particularly useful responses. They were in London the following week to meet:

"Lundi 25 juin 2012

- son excellence l'ambassadeur Bernard Emié

- M. John Christensen, Tax Justice Network

- M. Richard Murphy, Tax Research UK

- M. Dave Hartnett, permanent secretary for tax, HMRC

- M. Forent Barrois, attaché fiscal

- Mme Laurence Dubois-Destrizais, chef du service économique régional

- M. Harry Partouche, conseiller financier

- M. Joseph Stead, Christian Aid"

The perhaps innocent discussions in front of a HMRC representative did not include the French attempt to allocate a deemed fiscal identity to a taxpayer to determine a form of deemed income stream or "rente", which faute de mieux would be presumed "correct".

In other words the French, but perhaps not yet the British are working towards a fiscal fiction which will become economic réalité at the level of international institutions.

However, ever since the French attempt to create a notional "rente" upon an figurative level of deemed capital entitlement producing a "correct tax liability" appears to have infected the fiscal consciousness of the left, or rather those left in London.

"Lors de sa mission à Londres, les interlocuteurs rencontrés par votre rapporteur ont déclaré envier l'existence en France d'un principe général de lutte contre l'évasion fiscale pour l'adoption duquel ils militent parfois dans leur propre pays. Le temps a manqué pour tempérer un enthousiasme que notre droit ne mérite pas tout à fait.


Au demeurant, elle inspire des réformes essentielles comme celle de l'imposition des bénéfices en Europe sur une base consolidée avec une clef de répartition obéissant dans son esprit à ce principe de proportionnalité. Pour guider la réflexion, une fois encore la référence à la « nouvelle économie géographique » et à sa théorie des « rentes d'agglomération » paraît une voie féconde. L'écart manifeste entre la dette fiscale construite par le contribuable et la dette qui résulterait de la taxation de sa « rente », telle

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qu'envisagée par le législateur pourrait constituer un motif de redressement d'une évasion fiscale."

Translation: "To guide one's thinking, once again, the reference to the "new economic geography" and to its theory of agglomerated entitlements" seems a plentiful direction to take. A manifest differential between the fiscal debt created by the taxpayer and the debt resulting from the taxation of his "rente", as envisaged by the legislation could be the grounds of a tax reassessment of tax evasion."

However, given Mr Hartnett's past excesses, can one be pardoned for querying whether further specifically individualised items were not also released in front of not only the French Parliamentary delegation, but also into the hearing of the animi of two NGO's?

To do his intelligence some justice, other than legal or fiscal, probably not.

However, the insinuation from this meeting of the minds is that something equally sinister is afoot when the whole idea of Brexit is to have our fiscal sovereignty reinforced, not eroded.

Now what about Information Exchange on an automatic basis? Has Statute, in other words, have the Statutory Instruments implementing the GFA with the USA under FATCA or for that matter CRS unwittingly fallen within the scope of this?

Are these generalised information sharing arrangements no more or less than "Henry VII clauses" dressed in borrowed robes?

Unfortunately that argument is unlikely to get an airing except in an extreme case, for example, kidnapping and execution following from a leakage of confidential information abroad. Can one trust HMRC to keep information technically outside the parameters of FATCA and CRS to itself, or is Dave Hartnett's example likely to be followed? Naming and Shaming may well lead to violence outside the jurisdiction.

"Watch the wall my Darling as the information goes by." ....? Their Lordships and Lady Hale did not.

Let me be clear, if the common law bulwark is of a constitutional nature, is it correct to overrule it by a mere statute or statutory instrment incorporating CRS, BEPS or any other international organisation's collectivised "opinion" upon what is best practice? I would support the obvious answer to that by stating that the British constitution cannot be affected by the competences of the OECD, through an abusive extenton of governmental "prerogative" as these are defined by its constitutional Treaty, which does not include instituting constitutional amendments in its Member States, and neither does HMG have the prerogative right to remove constitutional common law in this manner. It is only saved by the use of the statute as a bludgeon.

Is that sufficient, from the perspective of the effect of the Boston Tea party, and for that matter the English civil wars? There is certainly more to the British constitution in its tectonically half unwritten format than meets the eye.