From 1 April 2015, HMRC was given new powers to prevent corporations in the UK from hiding their profits offshore. As the decision in Glencore Energy UK Ltd v Revenue And Customs  EWHC 1476 (Admin) notes at § 9:
provisions were introduced aimed at countering the use of aggressive tax planning deployed by multinational corporate groups to divert from the United Kingdom profits which would otherwise have been subject to corporation tax.
(This sort of tax planning includes corporations that use ‘transfer pricing’ to shift income away from the countries where relevant economic activity takes place and into tax havens. Companies have used apparently ‘arms-length’ transactions with offshore companies to divert their profits away from the UK and into Switzerland, for example).
Under these new(ish) powers, HMRC sent Glencore a tax bill of over £21 million, plus 9 months of interest. Glencore disputed their tax liability.
The Finance Act 2015 creates the power to issue a notice for a charge of Diverted Profits Tax (s. 95), establishes an internal review mechanism (s. 101 and 102) and allows for a tax officer to review the charge.
If the bill remains unresolved the taxpayer can appeal to the tax tribunal under s. 102.
Rather than going to the tax tribunal, Glencore brought a claim for judicial review arguing that the tax officer got the law wrong, ignored what the corporation had to say about the charge, failed to give sufficient reasons and got its calculations wrong.
Predictably, HMRC hit back, arguing that Glencore can make such arguments in the tax tribunal and had no right to judicial review. Glencore had what lawyers call “alternative remedies” which it would have to use first.
The High Court refused Glencore permission for judicial review.
Interested observers may find useful the Court’s overview of how the UK’s Diverted Profits Tax regime operates (see §§ 11 to 22).
The statutory review process and if necessary the right of appeal to the tax tribunal provided an “adequate and appropriate” remedies for the issues in dispute to be resolved (§ 7). Each of the grounds of complaint could be addressed as part of the statutory review and appeal processes (§ 100 and 115). The tribunal’s job is to decide the correct amount of tax payable. There would be no savings in time or cost by allowing Glencore to use judicial review proceedings (§ 77).
The Court noted that the parties had engaged in negotiations and HMRC had agreed to consider amending or revoking the tax bill if Glencore presented further evidence.
Finally, the Judge relied on the power in section 31(3C) of the Senior Courts Act 1981 as a further reason to reject the application (§ 122). This is a frequently used weapon in the Defendant’s arsenal in judicial review claims. It allows the Court to reject a claim if the same decision would have been reached even if no legal errors had been made by the decision-maker.
Given that this is the first reported decision on Diverted Profits Tax, it will be of considerable interest to those advising clients on tax liability under HMRC’s new powers. The case has also generated a separate judgment on the High Court’s powers to grant permission to appeal – itself a suggestion that the case may rumble on in the higher courts.