Aozora GMAC Investment Ltd, R (On the Application Of) v Revenue And Customs

An HMRC statement of legal interpretation can, in principle, create a legitimate expectation. It must be sufficiently clear and reliable in context. Reliance must be shown to have played a real and substantial part in the relevant advice or decision. Even established reliance will not prevent HMRC correcting an error unless resiling would be so unfair as to amount to an abuse of power. A high threshold applies, ordinarily requiring clear evidence of substantial detriment.

Aozora GMAC Investment Limited challenged HMRC closure notices denying unilateral foreign tax credit relief for United States withholding tax on interest received from its US subsidiary. The claim relied on former HMRC guidance stating that section 793A(3) of the Income and Corporation Taxes Act 1988 applied only to Article 24(4)(c) of the UK/US Double Taxation Convention.

Aozora argued that the guidance created a legitimate expectation that unilateral relief would be available. The issues were whether there was a relevant representation, whether it was relied upon, and whether it would be conspicuously unfair or an abuse of power for HMRC to resile from it.

1. Claim dismissed. The guidance constituted a relevant representation, but Aozora failed to establish the necessary reliance and conspicuous unfairness.
2. A statement of law or legal interpretation in HMRC guidance is not incapable of creating a legitimate expectation. The question is whether, read in context, it was sufficiently clear, comprehensive and reliable to be fairly and reasonably relied upon. The relevant guidance clearly represented that section 793A(3) applied only to Article 24(4)(c) of the Treaty.
3. Reliance was not established. Aozora Japan was unaware of the guidance. Deloitte’s advice rested on its own analysis that section 793A(3) was directed exclusively to Article 24(4)(c), with the guidance providing only comfort or encouragement. Reliance requires the representation to play a real and substantial part in the advice or decision.
4. Where reliance is attributed to a professional adviser, the adviser should ordinarily draw the representation to the taxpayer’s attention and explain that it is being relied upon.
5. Resiling from erroneous guidance is prevented only where the resulting unfairness is exceptionally high. Clear and compelling evidence of substantial detriment was required. A possible higher tax burden, without evidence of what the taxpayer would otherwise have done, was insufficient.
6. The court did not finally determine the correct construction of section 793A(3), which remained for the taxpayer’s appeal before the First-tier (Tax) Tribunal.

This was a first-instance judicial review claim. The judgment records an extant appeal against the closure notices before the First-tier (Tax) Tribunal, but the judicial review claim was dismissed.