Summary
United Kingdom legislation is presumed to operate territorially unless its language, purpose or subject matter clearly indicates otherwise. That presumption applies to legislation affecting British nationals abroad and is reinforced by international comity and the sovereignty of foreign states. Enforcement powers carrying penalties or criminal sanctions require particular caution. The territorial question must be determined by construing the statutory scheme as a whole, rather than isolating one power. The existence of international tax-enforcement arrangements may support the conclusion that domestic investigatory powers do not extend abroad. Applying those principles, Schedule 36 to the Finance Act 2008 did not authorise service of a taxpayer notice on a British national living in Dubai.
Factual background
The claimant, a British national living in Dubai, challenged the lawfulness of a taxpayer notice issued by HMRC under Schedule 36 to the Finance Act 2008. The First-tier Tribunal had approved the notice following an ex parte hearing. Permission for judicial review was limited to whether Schedule 36 authorised service of the notice outside the United Kingdom. The underlying issues concerning residence, tax liability and the reasonableness of the information sought were not before the court. The central question was whether the statutory investigatory power had extra-territorial effect.
Held
- The claim succeeded. The taxpayer notice served on the claimant in Dubai was unlawful, and the notice was quashed.
- The territorial issue had to be determined by construing Schedule 36 as a whole. The purpose of creating an effective system for checking tax liabilities was relevant, but it did not itself establish extra-territorial effect.
- The Masri principle, derived from the ordinary presumption that legislation does not apply to persons or matters outside the territory to which it extends, applied. The court also had to presume that Parliament intended to act consistently with international law and not to infringe the sovereignty of another state.
- The fact that the claimant was a British national did not resolve the issue. British nationals may fall within Parliament’s legislative grasp abroad, but legislation may nevertheless be construed as territorially limited where its language, subject matter and purpose support that result.
- Schedule 36 conferred investigatory powers backed by penalties and, in some circumstances, criminal sanctions. Those features made the power an enforcement jurisdiction and distinguished it from merely imposing a substantive tax liability.
- The statutory scheme contained features inconsistent with a general extra-territorial power. It authorised inspections of business premises, permitted information demands directed to foreign businesses, and provided for penalties or prosecution for conduct abroad. It contained no express territorial provision distinguishing taxpayer notices from other information notices.
- The provisions concerning relevant foreign tax and international tax-enforcement arrangements supported a territorial interpretation. Such arrangements provided an established means of obtaining information from persons abroad.
- Derrin Bros. Properties Ltd v First-tier Tribunal (Tax Chamber) provided useful guidance on Schedule 36 but was not directed to the territorial issue. Perry v SOCA was persuasive because it treated compulsory information notices backed by criminal sanctions as territorially limited.
The court’s approach to earlier authorities
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Appellate history
First instance judicial review proceedings. The claimant challenged approval by the First-tier Tribunal, but this court considered only the extra-territoriality ground for which permission had been granted.
Appeal route
- This judgment [2017] EWHC 2585 (Admin) High Court (Administrative Court)
- Appealed to[2019] EWCA Civ 51Outcomeappeal allowed (unanimous)
Key cases cited
15 authorities cited.
- Jetivia SA and another v Bilta (UK) Limited (in liquidation) and others [2015] UKSC 23
- R (on the application of Smith) v Secretary of State for Defence and another [2010] UKSC 29
- Masri (Respondent) v Consolidated Contractors International Company SAL and others and another (Appellant) and another [2009] UKHL 43
- Al-Skeini and others (Respondents) v. Secretary of State for Defence (Appellant) Al-Skeini and others (Appellants) v. Secretary of State for Defence (Respondent) (Consolidated Appeals) [2007] UKHL 26
- Clark v Oceanic Contractors Inc [1983] 2 AC 130
- Derrin Brothers Properties Ltd & Ors, R (on the application of) v A Judge of the First Tier Tribunal (Tax Chamber) & Ors [2016] EWCA Civ 15
- Browning v The Information Commissioner & Anor [2014] EWCA Civ 1050
- Dar Al Arkan Real Estate Development Co & Anor v Refai & Ors [2014] EWCA Civ 715
- R (Morgan Grenfell & Co Ltd) v Special Comr of Income Tax [2001] EWCA Civ 329
- HM Revenue & Customs v Ariel [2016] EWHC 1674 (Ch)
- Re An application by HMRC: ex parte John Ariel [2017] UKFTT 87 (TC)
- Perry v SOCA [2012] 4 All ER 795
- R v Hape [2008] 1 LRC 55
- Re Clore (deceased) (No 3), IRC v Stype Trustees (Jersey) Ltd [1985] STC 394
- India (Government of) v Taylor (In re Delhi Electric Supply and Traction Co Ltd) [1955] AC 491
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Cases citing this case
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