Peter Kadas, R (on the application of) v The Commissioners for HRMC

Under an information-exchange provision requiring information to be foreseeably relevant, the requested state must identify a reasonable possibility of relevance at the time of the request. It must not facilitate a fishing expedition. Once the requesting authority gives an adequate explanation, the requested authority cannot withhold information merely because it considers the information unlikely ultimately to assist the investigation. Allegations of corruption or bad faith may be material where they suggest an ulterior political purpose or an attempt to obtain money not lawfully due, but general and unsubstantiated allegations do not require extensive further investigation. Judicial review examines the rationality of the authority’s decision and the reasonableness of its inquiries, not the merits or lawfulness of the underlying foreign tax investigation.

The claimant, a financial adviser formerly resident in Spain, challenged HMRC’s decision to provide Spanish tax authorities with banking information requested under article 26 of the United Kingdom–Spain Double Tax Convention. The request related to an audit of his entitlement to Spain’s Impatriate scheme and the assessment of his Spanish income and wealth tax liabilities.

He alleged that HMRC had unlawfully assumed that the Spanish authority was acting in good faith, had failed to investigate relevant concerns, and had irrationally concluded that the information was foreseeably relevant. He also relied on article 8 of the European Convention on Human Rights. The central issues were the scope of HMRC’s obligations, the adequacy of its inquiries, and the rationality of its foreseeable-relevance assessment.

1. Disposition. Permission was granted on all grounds, but the claim was dismissed. Grounds 1 and 2 failed, and the contingent article 8 ground therefore failed.
2. Information exchange. Article 26(1) imposed the primary obligation to exchange information that was foreseeably relevant to the administration or enforcement of Spanish tax law. The standard required a reasonable possibility of relevance when the request was made. A speculative request with no apparent nexus to an open investigation would be a fishing expedition. Once an adequate explanation was provided, HMRC could not withhold the information merely because it doubted its ultimate relevance.
3. Article 26(3) qualified the obligation, including where compliance would require administrative measures contrary to applicable law or disclosure contrary to public policy. Section 173(5) of the Finance Act 2006 similarly required HMRC to be satisfied that the recipient would use the information consistently with the purposes of the arrangements.
4. Allegations of corruption or bad faith could be relevant. A request made for an ulterior political purpose, or to assist extortion of money not lawfully due, might fail the foreseeable-relevance and statutory-use tests. General and unsubstantiated allegations, without a substantive link to the claimant’s case, did not require further investigation beyond the rational inquiries HMRC undertook.
5. The court’s task was not to assess the merits or legality of the underlying Spanish investigation. HMRC had to decide the narrower question whether the information was foreseeably relevant. The court reviewed that decision for irrationality and demonstrable flaws, applying the principles governing the Tameside duty. The scope and intensity of inquiry were for HMRC, subject to rationality review and appropriate respect for its institutional expertise.
6. HMRC had considered the principal concerns, sought further explanations from the Spanish authority, examined the available media material and rationally concluded that the banking information concerned the claimant’s financial affairs and was foreseeably relevant to the audit. A late attempt to rely on article 26(3)(a) and (c) was procedurally impermissible and, in any event, unsupported by the evidence.