Terence Murphy & Ors v The Commissioners for HMRC

It is for HMRC to satisfy the tribunal that the relevant conditions have been met for a discovery assessment to have been validly made (see Burgess v HMRC [2016] STC 579). DH made and delivered a return under s 8 TMA. HMRC must therefore show that a discovery was made and that one of the conditions in s 29(4) or (5) was met. They did not argue that s 29(4) was in point but rather that the condition in s 29(5) is met.

The correct test for whether a discovery has been made is as set out in Charlton & ors v HMRC [2013] STC 866 at [37]:

“In our judgment, no new information, of fact or law, is required for there to be a discovery. All that is required is that it has newly appeared to an officer, acting honestly and reasonably, that there is an insufficiency in an assessment. That can be for any reason, including a change of view, change of opinion, or correction of an oversight. The requirement for newness does not relate to the reason for the conclusion reached by the officer, but to the conclusion itself.”

This comment was approved by the Supreme Court in HMRC v Tooth [2021] UKSC 17, [2021] 1 WLR 2811, but the point was not in dispute (see the decision at [64] and [65]). A similar formulation of the test appears in Cenlon Finance Co Ltd v Ellwood [1962] AC 782 at 794, which was endorsed by the Supreme Court in Tooth at [73].

The discovery must be something more than a suspicion of an insufficiency, but need not go as far as a conclusion that an insufficiency of tax is more probable than not: Anderson v HMRC [2018] UKUT 159 (TCC), [2018] 4 WLR 90. The same discovery that is made by one officer can be made for a second time by a different officer (see Tooth at [78]). There is no possibility of a discovery becoming stale once made (see Tooth at [76]).

As regards DH and the Harris Trust (a) the correspondence shows that, the 2000/01 return of the Harris Trust was amended, in accordance with HMRC’s approach to claims made within the period for amending a return (set out above), to include a claim for relief under the treaty, or (b) alternatively, that the trustees of the Harris Trust made a valid claim for relief under the treaty outside of the trust return after the time for amending that return had expired.

As regards the Murphys and the Murphy Trusts the correspondence shows that claims were made outside of a return, in particular a letter of 9 August 2007 and the notices of appeal made on 12 or 14 November 2007.

The correspondence was between the appellants’ agents and specific officers of the Board, which does not suffice for a claim to be made to the Board itself (s 788 ICTA).

There is no quantification of any claim in any of the correspondence.

Any correspondence that was on behalf of the appellants, rather than the trustees, cannot amount to a valid claim under the treaty (such as the letter of 9 August 2007 and the appellants’ notices of appeal). A claim can only be made by the trustees.

The understanding of the appellants’ representative was that no claim needed to be made. A claim cannot have been made accidentally, in passing, without any intention to make a claim or understanding that the claim was required.

No document ever sent by the appellants was accompanied by the declaration of accuracy that is required by para 2(4) of schedule 1A TMA.

The notices of appeal are not a claim for relief, they are grounds of appeal which are fundamentally different. An officer of HMRC reading these letters of appeal may quite reasonably conclude that the taxpayers intended to challenge an assessment made by HMRC and not that they intended to make a claim for relief under the treaty. These letters were not intended to amount to claims for relief and are not drafted as such. They are made on behalf of the settlors and not the trustees and fail the requirements set out above. Similar comments apply in respect of the other documents the appellants rely on.

In support of this view, they noted that with effect from 7 April 2005 (1) s 50 of the Commissioners of Revenue and Customs Act 2005 states that: “A reference to the Commissioners of the Inland Revenue shall be taken to mean a reference to the Commissioners for Revenue and Customs, HMRC” and (2) s 13(1) of that Act provides that: “An officer of Revenue and Customs may exercise any function of the Commissioners.” Mr Windle submitted that hence from that time a claim had to be made to HMRC and any officer of HMRC could exercise the function of receiving that claim.

The relevant provisions in ICTA were replaced by provisions in the Taxation (International and Other Provisions) Act 2010 and the explanatory notes make clear that the function of accepting such claims by an officer of HMRC was the accepted practice; it records that all functions affected by the change to s 788(6) were in fact exercised by officers of HMRC before that time.

The purpose of requiring a taxpayer to make a claim for relief under a double tax agreement is simply to alert an inspector to the fact that the relief is being sought by the taxpayer. Further, at the relevant time, as set out above, s 42 TMA was intended to provide a simple and easy way to meet requirements for making a claim, which HMRC have always had the power to supplement. An overly formalistic approach to this legislation, as contended for by HMRC, would frustrate these purposes and risk doing damage to legislation of very wide application.

It suffices for there to be a valid claim for treaty relief that HMRC could have been under no misapprehension from the relevant correspondence that the taxpayers relied on and wished to benefit from treaty relief, albeit that the correspondence did not contain any formal claim for relief as such and that the appellants/their agents did not consider it was necessary for them to make a formal claim in order to benefit from the relief. That follows from the decision of House of Lords in Gallic Leasing and Unilever.

From Gallic Leasing it is clear that there is no requirement for a particular form of words or for the claim to be in a single document or for the taxpayer to state a claim is being made. The subjective intention of the taxpayer and/or their agent is irrelevant to whether a claim has been made for relief; if a reasonable reader would understand from the correspondence that a taxpayer intends to benefit from a relief that suffices for there to be a claim. It would be unduly onerous for HMRC to have to be concerned with what the taxpayer actually thought or meant. Moreover where the actual officer dealing with the matter plainly understands that relief is being sought, there must be a high bar on HMRC being able to say that the claim has not been adequately communicated. The requirements for there to be a claim are not very high (see the decision in Unilever). The purpose is to ensure HMRC understand and what is being claimed, but not to impose an excessive burden or set out traps for taxpayers. As the House of Lords in Gallic Leasing identified that is not surprising as, when HMRC consider that higher requirements are needed, they have the power to impose them as they see fit.

Strong support for this conclusion can be drawn from the Upper Tribunal decision in X-Wind Power Ltd v HMRC [2017] UKUT 290 (TCC). Which held that X-Wind Power Ltd had by submitting the wrong form made a claim for relief under the Enterprise Investment Scheme (“EIS”) even though its subjective intention had always been to claim SEIS relief (at [17] and [18].

A taxpayer must actively seek relief from tax. It cannot be HMRC’s role to consider a tax return and decide what relief would be in the taxpayer’s best interests, or what form of relief the taxpayer should be seeking. It is not HMRC’s role to act as a taxpayer’s agent and perfect an imperfect tax return. Claiming relief from tax is not always unambiguously positive. There are various occasions on which a taxpayer may quite reasonably choose not to claim a relief to which he or she is entitled.

A claim must be unambiguous. One of the key purposes of making a claim is to alert HMRC to the fact that a specific form of relief from tax is sought. A claim cannot leave any room for doubt that relief from tax is sought or which specific form of relief from tax is sought. Moreover, the right to claim relief from tax is subject to time limits and the making of a claim itself triggers time limits (such as to enquire into the claim). There must therefore be no doubt about when a claim for relief is made.

The appellants did not dispute these points in principle albeit that the parties views differed on whether these requirements were satisfied in this case.

A claim must be deliberate, in that it should follow from a conscious decision to claim a form of relief. Whilst administrative errors are always possible, any system whereby relief could be claimed unintentionally or accidentally would lead to real injustice and uncertainty. The decision in X-Wind Power Ltd v HMRC [2017] UKUT 290 (TCC) does not support the proposition that a taxpayer’s subjective intention is irrelevant in considering whether a claim for relief has been made. The case concerned the effect of a compliance statement for EIS purposes. As Arnold J said, at [22], a compliance statement is not a claim. In any event, this is simply authority that a compliance statement for EIS does not become a compliance statement for the Seed Enterprise Investment Scheme simply because that is what the taxpayer intended.

The relevant requirements are not onerous. They are easily met by the inclusion of a single sentence in a trustee’s tax return saying, “Relief is sought pursuant to article 14(4) of the [treaty] in relation to the disposal of [X asset] on [Y date] such that the trustee should be granted relief from liability to capital gains tax in the sum of [Z amount]” or words to similar effect.

The claim: (a) is premised on a disposal that was made by the trustees and (b) concerns the residence of the trustees. The facts which are the subject matter of the claim all relate directly to the trustees and not to the settlors. It is not possible for a claim premised on the residence of the trustees to be made by any person other than the trustees themselves. The treaty applies to the trustees and it is not suggested that it applies to the settlors.

In order to calculate the amount of chargeable gain treated as accruing to the settlor, it is necessary first to calculate the chargeable gain that would accrue to the trustees after taking into account applicable deductions (see s 77(1)(b) and 2(2) TCGA). Any relief which is available to the trustees will therefore operate so as to reduce the amount of chargeable gain which is treated as accruing to the settlor. Therefore, it is necessary for any reliefs that could reduce the gain to be claimed by the trustee as part of the calculation. That includes any relief claimed under a double tax treaty.

The purpose of a trustees’ tax return is set out by s 8A TMA which, at the relevant time, said, “for the purpose of establishing the amounts in which the relevant trustees of a settlement, and the settlors and beneficiaries, are chargeable to income tax and capital gains tax for a year of assessment…an officer of the Board may…require the trustee…to make and deliver to the officer…a return…”.

The better construction is that s 77(1)(b) TCGA requires a hypothetical approach to the computation of the chargeable gain on which the trustees of the relevant trust would otherwise be chargeable. It is for the settlor of the relevant trust, as the person who is actually chargeable on the relevant gain and who therefore actually benefits from relief under the treaty, to inform HMRC that the treaty applies. That approach fits much better with the scheme of the legislation. Rather than requiring trustees to claim a relief, which makes no difference to their actual CGT liability, one simply considers what their CGT liability would be in the abstract and allows the person who is actually affected by that liability to make a claim: any relief favourable to the trustees will therefore operate so as to reduce the amount of chargeable gain which is treated as accruing to the settlor.

This approach is consistent with the decision in Eyretel Unapproved Pension Scheme & Ors v Revenue & Customs [2008] UKSPC SPC00718, [2009] STC (SCD) 17:

In Duke v HMRC [2010] UKFTT 306 (TC), the same issue arose and the tribunal followed the same approach as was taken in Eyretel.

Moreover there is no basis offered by HMRC for contending that no other person can make the claim. Indeed, given the variety of entities which are partially transparent (such as limited liability partnerships) it would be surprising in the context of double tax relief if there was a hard and fast rule against a person making a claim in respect of someone else. Until May 2020 it appears that HMRC believed that claims for double tax relief could be made by the settlor as that is what their own guidance appears to say. The CGT manual stated that: “A settlor may be able to claim exemption on some or all of the attributed trust gains, but this depends on the terms of the particular double taxation agreement.”

An estoppel by convention can be established through correspondence with a person with actual or apparent authority to represent the principal (see [27]).

An estoppel by convention can apply to a common assumption of facts or law (see [31]).

It is no bar to an estoppel by convention that the mistake of the party raising the estoppel was not instigated by the other party (see [32] and [56]).

The common mistaken assumption must be one that each party has communicated to the other. This is the requirement that there must be a statement or conduct between the parties that “crosses the line”. In other words there must be some mutually manifest conduct which is based on the common but mistaken assumption. That is, the party which is alleged to be estopped is required to manifest its acceptance or sharing of the assumption to the party which is alleging the estoppel. What was in mind, therefore, was communication (whether by speech or conduct, and whether express or implied) crossing an imaginary line, drawn between the parties to the effect that the estopped accepted or shared the assumption. (See [34]).

A key factor in whether it would be unfair, unjust or unconscionable for a party to assert the true legal or factual position is whether there was still time for the party seeking to raise the estoppel to take corrective action when they become aware of the true legal or factual position (see [44] summarising Benchdollar).

In relation to claims for NICs arising from the 1994/95 tax year, he explained that HMRC had in reliance upon the shared understanding that the scheme was effective to postpone the running of time in fact allowed the primary limitation period for those claims to expire by, at the latest, the end of May 2001. By then, HMRC had been given reason to think that the efficacy of the scheme was in doubt, but did not know, prior to obtaining advice to that effect on 9 August, that it was in fact ineffective. HMRC therefore suffered a detriment in reliance upon the shared assumption, in relation to those claims from which it could not extricate itself in or after August 2001. At the same time, the taxpayers subject to disputed claims for that tax year had enjoyed the full anticipated benefit of HMRC’s reliance upon the assumed effectiveness of the acknowledgements and part payments, in the sense that they had not been visited with protective recovery proceedings in the meantime and, subject to certain isolated possible exceptions, continued to enjoy that benefit until the resolution of the statutory appeals. He concluded at [59] that the combination of a detrimental reliance by HMRC coupled with the obtaining by the relevant taxpayers of the anticipated benefit of HMRC’s reliance upon the shared assumption is sufficient to render it unfair and unjust for those taxpayers now to advance a limitation defence in relation to NICs arising out of that tax year.

He then addressed NICs arising in the 1995/96 tax year where time for the pursuit of those claims had already passed by 9 August 2001 or between that date and 10/11 September 2001, when HMRC decided not to take steps to protect claims from becoming statute barred. He noted that the effect of a party becoming aware of the untruth of the shared assumption “is not necessarily to kill the estoppel stone dead there and then. The reliant party is commonly afforded a limited time in which to protect itself from the consequences of a discovery of the true legal or factual position” (see Arden LJ’s analysis in London Borough of Hillingdon v ARC Ltd [2000] EWCA Civ 191, at [64]). He said that on the facts of the present cases, a reasonable time for HMRC to react included the period between 9 August and 10/11 September 2001. There was no need artificially to extend the period beyond that date, since by then HMRC had made a conscious decision not to take steps to protect itself in relation to any claims for which the primary limitation period was still running at that later date. (See [60] and [61].)

At [62] onwards he considered the position in relation to claims which only became statute barred after 10/11 September 2001, and said that:

“the analysis of the question of injustice or unconscionability assumes an altogether different aspect. The Revenue could have taken steps to protect those claims from becoming statute barred either by issuing protective claim forms or by seeking to make effective tolling agreements with the relevant employers. Those NIC claims did not therefore become statute barred by virtue of the Revenue’s reliance upon the shared assumption.”

At [63] he noted that HMRC submitted that (a) the fact that HMRC’s decision in September 2001 to take no further steps meant that taxpayers who had participated in the scheme continued to enjoy in full the benefit which they anticipated that they would receive, namely not being made the subject of protective recovery proceedings while liability to pay the NICs remained in issue in the statutory appeals process, and (b) in cases where the receipt of the anticipated benefit made it unjust for the recipient to resile from the shared assumption, the fact that a case in detrimental reliance could not also be established was neither here nor there. He concluded that it was not on balance unfair, unjust or unconscionable for taxpayers in these circumstances to assert a limitation defence to those claims, arising out of HMRC’s decision not to protect them once aware of the true legal position for the following reasons:

Evidence and facts relating to the procedural issue

General early correspondence

On 11 May 2001, Mr John Roberston an Inspector of Taxes at HMRC wrote to Funcode, the trustee of the O trust, opening an enquiry into the 1999-2000 trust tax return of that trust:

This letter proceeded on the basis that the application of the treaty was in point. Mr Morris’ evidence is that he understood this letter to mean that there were no procedural issues between the parties, such as whether claims for treaty relief had been made.

On 13 June 2001, Funcode replied stating that it did not agree that article 4(3) applied because there was “no provision of UK domestic capital gains tax legislation which deems the Trustees to be resident throughout 1999/00” .

On 29 June 2001, Mr Robertson replied to Funcode:

“As the trustees were resident during part of 1999/2000 they are chargeable on all the gains realised by them in that year subject to any successful claim they may have to DTA relief and subject to the provisions of [s 77]. I need the information I have requested to determine whether treaty relief is available to the trustees. But I also need to check whether the trustees did in fact cease to be resident in the UK as they have claimed in order to check whether Section 80 TCGA 1992 applies to the trustees.”

On 6 August 2001, Mr Robertson sent an information notice to Funcode (under s 19A TMA) seeking much of the information that had been requested in the letter of 11 May 2001 which Funcode provided on 29 August 2001.

On 13 September 2001, Mr Robertson wrote to Funcode saying:

“The No. 2 trustees have not returned any gains in their 1999/00 Self Assessment Return, presumably on the basis that the taxing rights for the gains are allocated to [NZ] under the [treaty]. The No. 2 trustees were residents of the UK for the purposes of the DTA in 1999/2000 and I need to clarify for the purpose of considering any claim under the [treaty] whether or not the No. 2 Trust was a resident of [NZ] for the purposes of the [treaty] at the time the disposals were made.”

This letter proceeded on the basis that the treaty applied. Mr Morris considered that this request for information as to the residence of the trustees could only be justified if Mr Robertson took the view that there were no procedural issues between the parties, such as whether treaty claims had been made.

He said that he understood that there was nothing further that needed to be done to rely on treaty relief because of HMRC’s actions. If HMRC had said at the time that a formal claim needed to be made, he would have advised the trustees to do so. He accepted that even if a claim had been made or could be treated as having been made in respect of the O trust that does not mean that HMRC had received and/or accepted a valid claim had been made by the appellants.

Funcode and Mr Robertson then exchanged letters discussing whether the O Trust was resident in NZ during the period when it had NZ resident trustees. On 20 December 2001, Funcode sent to Mr Robertson a letter from the NZ Inland Revenue stating that it had “classified the trust as resident for taxation purposes” .

On 30 January 2002, Mr Robertson replied to Funcode saying that he was:

“seeking clarification on the contents of the letter from the Greymouth Branch Office of the [NZ] Revenue as it appears to conflict with other guidance received from the [NZ] Revenue concerning the application of their domestic tax code to trusts with [NZ] resident trustees.”

On 6 February 2002, Funcode wrote to Mr Robertson asking for a copy of the communication with the NZ Inland Revenue.

On 20 February 2002, Mr Robertson replied saying that:

“Article 25 of the [treaty] allows for exchange of information between the competent authorities of each contracting State for the purposes of carrying out the provisions of the Agreement”.

Following further correspondence, on 26 April 2002, Mr Robertson wrote to Funcode saying:

“As I explained in my letter of 20 February 2002, I am waiting for clarification from the [NZ] competent authority of the tax status of trusts in [NZ] as I need that information to decide on your client’s claim for relief under the terms of the [treaty]. This is because the letter written by the Gremouth [sic] District Office appears to be at variance with our understanding of the tax treatment of trusts in [NZ].”

On 21 July 2003, Mr Robertson wrote to Funcode saying:

“I apologise again for the delay but I can now confirm that I accept that the [O] Trust was a resident of [NZ] for the purposes of the [treaty] at the time of chargeable disposals by the trustees. The Trust was also a resident of the UK for the purposes of the Treaty place of effective management.”

Mr Robertson sent letters in near identical terms to the trustees of other settlements in August 2003. Since then, HMRC have accepted that the trusts advised by Lansburys that appointed NZ resident trustees were resident in NZ during the trustees’ appointment.

On 5 August 2003, Funcode wrote to Mr Robertson noting that he “now accept[ed] the Trust was a resident of [NZ] for the purposes of the [treaty] at the time of disposals by the Trustees”.

On 28 August 2003, Mr Robertson replied to Funcode saying:

“In order to obtain the benefit of the Treaty the Trust has to show firstly that it was a resident of [NZ] for the purposes of the [treaty]. Secondly if it is a resident of [NZ] it has to show that if as I contend it is also a resident of the UK for the purposes of the Treaty the tie-break clause awards taxing rights to [NZ]. If the Trust was not accepted by [NZ] as a resident of [NZ] for the purposes of the Treaty then any gains realised by the trustees in 1999/2000 would have been chargeable gains of the trust and a like amount would have been assessable on the settlers under Section 77 TCGA 1992. That was why it was necessary for me to establish first of all whether or not the Trust was a resident of [NZ] for the purpose of the Treaty and then when that was established to consider the application of the tiebreaker.”

Throughout the rest of 2003 and most of 2004, Funcode and Mr Robertson continued to correspond about the effect of the treaty on the O Trust.

On 16 January 2004 Funcode requested that Mr Robertson set out all his arguments He agreed to do so. This was followed by a chaser from Funcode. Mr Robertson then apologised for the delay in providing “a comprehensive explanation of the Revenue’s views on the facts of this case and the issues raised by them”. As Mr Bentley accepted, the comprehensive response from HMRC on 18 June 2004 proceeded on the basis that the only relevant concern was the interpretation and application of the treaty (leaving to one side the options issue). He also accepted that it was possible that similar correspondence was sent in other of the around 11 enquiries which were open at the time in respect of Lansburys’ clients.

In around November 2004, the enquiries into the tax returns of Mr O and the O trust, as well as most settlements advised by Lansburys were taken over by Mr Duncan Cameron of HMRC.

Correspondence relating to DH

DH submitted a personal tax return for 2000/01. In his return there is no reference to the gains which accrued to the Harris Trust when the relevant shares were disposed of or to the disposal itself. The only reference to gains on assets was to a disposal on 26 January 2001 for a small number of shares in GED Technology Group Limited made by DH. HMRC did not open any enquiry into DH’s personal tax return.

It is clear that a return for that year was also submitted for the Harris Trust but the bundles contained only HMRC’s computer extracts or “screenshots” from that return. Mr Bentley confirmed that the original return would have been a paper return, information from that would be inputted by a member of HMRC staff into the system, there is a box to tick if for example additional information was entered in the white spaces on the return but as he was not responsible for this he did not know otherwise how the inputting worked. Mr Morris confirmed that neither DH nor Mr Gaskell (as director of Allglory) has been asked to give evidence to explain what information was contained on that return. It appears from the extract that it make makes no reference to the disposal of the shares in the company or to any gain on that disposal.

On 19 December 2002, Mr Robertson wrote to Allglory, the then trustees of the Harris Trust, and opened an enquiry into “the Trust’s residence and capital gains” and sought information relevant to the implementation of the RTW planning. The documents requested included the sale agreement for the sale of the Trustees’ holding of shares.

Mr Morris said that he understood this letter to mean that there were no procedural issues between the parties, such as whether claims for treaty relief had been made.

Mr Bentley accepted that (a) this letter shows that the enquiry into the Harris Trust was opened on the basis that the trust had been involved in the RTW planning, (b) some of the questions raised were aimed at least in part at establishing the POEM of the trust, and (c) Mr Robertson would have opened this enquiry following some sort of risk assessment process. He did not know if Mr Robertson would have looked at the trust tax return before opening an enquiry into it. Mr Bentley said he did not know where Mr Robertson obtained the information that the trustees of the Harris Trust had sold the shares held in the trust.

Mr Bentley said that in some instances, the enquiries and therefore the tax records for individual settlors and beneficiaries, including the enquiry file, would be managed and maintained by the regional offices responsible for them. From the records available, there was no clear determining factor which dictated why a particular approach was chosen. In this case matters relating to DH personally were managed by a regional office (Bristol and Somerset) and not by Mr Robertson, the RTW planning lead. In such cases, the RTW planning lead would liaise with colleagues in that office as appropriate. It would have been standard practice for a file of relevant documents to be maintained by the regional office, but he had found no evidence that it was ever sent to him or his predecessors. Due to the passage of time, and HMRC’s move away from paper records, any file that was once held by the regional office would not exist any longer. He had been unable to contact the individuals at that office mentioned in the correspondence referred to below. It appears that they have left the department.

On 21 January 2003, Allglory replied and argued that the information sought was irrelevant. Mr Bentley accepted that this letter shows that Allglory understood that one point in dispute was the way in which the treaty applied and quite probably they derived that understanding from other cases in which Lansburys clients had corresponded with Mr Robertson. Mr Gaskell signed the correspondence as director of Allglory. Mr Morris confirmed that no attempt was made to call him as a witness.

Mr Robertson replied on 6 February 2003 and sent other letters in similar terms on that date stating that his understanding was that a trust could not be a resident of NZ for the purposes of the treaty but that he was awaiting a definitive statement of the position by the NZ Competent Authority. He accepted that Allglory may wish to defer providing the information he had sought until the competent authority had confirmed the trust was resident in NZ.

As Mr Bentley accepted (a) in this letter Mr Robertson confirmed Allglory’s understanding that the construction of the treaty prevented a trust from obtaining relief, (b) Mr Robertson believed that POEM was going to be relevant if a trust was resident in NZ. He said “there was clearly some discussion about the application of” the treaty, and Mr Robertson appeared to believe that if the trust was resident, considering POEM was necessary.

On 8 August 2003, Mr Robertson wrote to Allglory confirming that he accepted the trust was resident in NZ at the time but asserting that it was also UK resident such that he considered it necessary to consider POEM.

As accepted by Mr Bentley, Mr Robertson had not said in any of the letters so far that other issues might arise in this case. When it was put to him that a person reading this letter might reasonably believe that HMRC’s only real issue was with POEM under the treaty, he said “they could, but it would be naive to do so.”

On 11 September 2003, in a letter which is stated to be in response to the letter from Mr Robertson of 8 August 2003 Allglory stated:

“We note that you now accept the Trust was resident in New Zealand for the purposes of the [treaty] at the time of the disposals by the Trustees.

You say “the Trusts were also residents of the UK for the purposes of the Treaty and so their Treaty residence is decided under Article 4(3) by the location of the place of effective management”. That is incorrect. Apart from the fact that we are dealing with only one settlement, for capital gains tax purposes the Trustees were New Zealand resident from the date the New Zealand trustees were appointed until those trustees were removed and replaced by ourselves.

Thereafter the Trustees were resident in the UK. At no time were the Trustees dual resident. The place of effective management is accordingly irrelevant. In view of this will you confirm your enquiry is closed.”

It was put to Mr Bentley that Allglory’s understanding was that, even on Mr Robertson’s case, the application of the POEM test would determine the dispute. He said they confirmed that Mr Robertson thought that POEM was in point although they disagreed; in their view it was irrelevant.

On 14 October 2003, Mr Robertson replied to Allglory’s letter of 11 September 2003 setting out detailed arguments about the application of the treaty to the Harris Trust. He said:

“However certain of the information requested in my letter of 19 December 2002 is I think relevant to considering the Treaty claim irrespective of the effective management point. I believe that…

I hope that you will now feel able to supply all of the information requested but without prejudice to the remainder of the Appendix can I please have the information requested in paragraphs 1, 2 and 7 of the Appendix to the letter of 19 December 2002 as it is necessary to support the trustees’ claim that because of the operation of the Treaty there were no chargeable gains in the year ended 5 April 2001.” (Emphasis added.)

Mr Bentley said that he did not think the use of the emphasised words necessarily meant that Mr Robertson had seen a claim and therefore accepted that a claim has been made. Mr Bentley seemed to mean a formal claim. However, as the appellants submitted, reading this letter in the context of the prior correspondence, it demonstrates that Mr Robertson had accepted that Allglory was seeking to rely on treaty relief and he was here communicating that acceptance to Allglory. Moreover the use of the word “claim”, particularly in the first paragraph as “the Treaty claim”, indicates that Mr Robertson considered that DH/the trustees had done what was necessary in order to be able to seek to rely on treaty relief.

On 20 November 2003, Allglory provided a lengthy response to Mr Robertson’s arguments. As Mr Bentley accepted this letter proceeds on the basis that the sole dispute between the parties is about the interpretation and application of the treaty.

On 23 December 2003, Mr Robertson (a) wrote to DH saying that an estimated CGT assessment for 2000/01 would be issued to him shortly which would charge a capital gain under s 77, (b) sent a memo to Mr Peter Langton, Investigation Manager of the Bristol & North Somerset office, in which he asked for an estimated assessment for the year ended 5 April 2001 to be issued to DH. The memo stated that the amount of the assessment should be based on an estimated £840,000 gain chargeable under s 77 TCGA and that “Mr Harris has used his offshore settlement to try and avoid capital gains tax on the disposal of shares in GED Technology Group Limited”, and (c) wrote to Allglory in reply to their letter of 20 November saying he now had an additional reason for believing tax was due; his view was that the omission of the word “only” from article 14(4) of the treaty meant that NZ did not have exclusive taxing rights over relevant disposals made during periods of residence in NZ. He subsequently dropped this argument. Mr Bentley accepted that this letter refers exclusively to the way in which the treaty applies.

On 6 January 2004, J F Lye of the Bristol & North Somerset office sent a fax to Mr Robertson which stated: “With reference to your memo of 23 December 2003, a Further Assessment has today been issued with respect of estimated Capital Gains of £840,000.”

On 27 January 2004, Allglory wrote to Mr Robertson challenging the additional point he had made in his previous letter and said:

“So that this enquiry is not unduly protracted can we suggest that in your reply you set out all arguments you wish to make in this matter with technical reasons so that they can be dealt with at the same time.” (Emphasis added.)

On 4 February 2004, Rossiter Smith & Co, wrote to Mr Robertson appealing against what they understood to be a notice of assessment. They do not refer to a specific document and neither party was able to locate a notice of assessment sent to DH but it appears it was issued on 6 January 2004 as stated in the memo referred to above. In that letter it was stated that the grounds of appeal are that “we understand there is still continuing correspondence between the trustees and Mr Robertson and that the gains made by the settlement are not assessable on Mr Harris”. It was also stated that DH was applying for a complete postponement of the tax charged in the sum of £333,120 – which seems to be the CGT charge on a gain of £840,000.

On 12 February 2004, Mr Robertson wrote to Allglory saying:

“I agree that the best approach would be if I set out in detail what liabilities I believe fall on your client and the reasons for those liabilities. In order to make that statement as comprehensive as possible I am consulting with colleagues and I will write to you again in due course.”

On 16 February 2004, Mr Robertson sent a memo to J F Lye in which he referred to the fax dated 6 January 2004 and confirmed he had received an appeal against the assessment raised in respect of the tax year ended 5 April 2001 and asked for the tax charge of £333,120 to be stood over.

On 29 July 2004, Mr Robertson wrote to Allglory setting out the arguments on which he was relying. The introductory section of the letter includes the following:

“A charge to capital gains tax arises on the trustees under Section 2 Taxation of Chargeable Gains Act 1992 subject to Section 77 TCGA from the sale of their holding of GED Technology Group shares. The trustees claim that the gain is not a chargeable gain as they were resident in [NZ] at the time of the disposal so that under the terms of the [treaty] only [NZ] can tax the gain.”(Emphasis added.)

Mr Bentley accepted that a reasonable person in Allglory’s position in receipt of the letter of 12 February 2004 would have thought they were going to get a letter, after careful thought and consideration, setting out all the arguments. He said that it was not clear that the reference to a “claim” in the July letter meant necessarily “claim” in a legal sense and that Mr Robertson appears to be putting what the trustees believe. He accepted that the letter then sets out the arguments on which Mr Robertson relied which were concerned with the interpretation and application of the treaty and that probably, in the absence of anything further coming to light, in view of this letter and the correspondence that preceded it, a recipient would understand that these were the only issues between the parties. He added that ultimately there would still need to be evidence provided and that it is not unusual for concepts to be explored in enquiries in the absence of a full statement of facts and evidence.

In response Allglory set out what it understood HMRC’s case to be and said that the POEM issue does not arise and therefore the enquiry should be closed. Mr Bentley accepted that looking at this letter it is apparent that Allglory appear to have understood that the only issue between the parties was the interpretation and application of the treaty.

In our view the July letter could simply be read as meaning that the trustees were maintaining or arguing that no CGT was due on the basis they were entitled to treaty relief but in any event it is again clear from this correspondence that Mr Robertson considered there was no issue with the trustees being entitled to rely on that argument.

Shortly after this HMRC and Lansburys agreed to discuss one informal lead case with all other cases waiting behind and it appears there was then little correspondence specific to DH’s case for the next decade. There is a letter from Lansburys to Mrs S March dated 13 September 2006 in response to a letter of 11 August 2006 from Mrs March to DH’s accountants, Rossiter Smith & Co. This letter was written at a time when Lansburys were interacting with HMRC as agents of both DH and the Harris Trust. It referred Mrs March to Mr Peter Wood, who was the HMRC officer corresponding with Lansburys (a successor to Mr Robertson) and states:

“I think the essence of your letter is why was

1)

any gain on the disposal of Mr Harris's No. 1 settlement’s holding of 249 shares in GED for 45,427 shares in Sitec and cash of £840,400 not a chargeable gain; and

2)

any gain on the appointment of Mr Harris's No. 1 settlement’s holding of 45,427 shares in Sitec to Mr Harris's 2001 settlement not liable to CGT in the hands of Mr. Harris.

The answer is that at the time of the disposal and appointment above the No 1 settlement was tax resident in [NZ] and under the terms of the [treaty] the gains could only be taxed in [NZ] and could not be imputed through to Mr. Harris.”

As Mr Bentley accepted, up to 2007, all correspondence relating specifically to DH and his trust proceeded on the basis that the interpretation and application of the treaty was the only issue between the parties, and that a reasonable person in the position of either DH or the trustees would have understood that that was HMRC’s only objection.

He said that he filled in every return that he got but he cannot say what happened as regards the Murphy Trusts. It was put to him that the letter relating to the AM Trust referred to above shows that he did not put in a UK tax return in respect of this trust because, in his view, there had been no income or gains in the trust in that period. He was initially insistent that, if he had received a tax return, he would have sent it in with this type of letter even if he would have put there were no gains arising.

He was taken to the letter relating to EM Trust and the form 50FS dated 18 April 2002. It was put to him that this shows that, where he had not received a UK tax return, he simply sent this type of letter. He said he could not recall. He accepted that (a) the EM Trust was different from the others as he was once the trustee of it through Altech and so received this form 50FS (as HMRC presumably did not know that Altech had resigned as trustee) and he completed it and sent it back to HMRC but (b) for the other Murphy Trusts he would not have completed any form 50FS because he/Altech was not the trustee, and (c) given that there were no UK tax returns submitted for the Murphy Trusts, HMRC were not told of the disposals.

He was asked if his understanding at the time was that as trustee he did not need to make a claim for relief under the treaty. He suggested the disposals may have been intimated in another manner as HMRC had identified these cases as involving RTW planning. He was asked if his understanding at the time was that, as the disposals were made by offshore trustees, it was not necessary to tell HMRC about the gains. He said that there were no gains that could be taxed. He then said that (a) he did not think it was necessary to put it on a UK tax return, and (b) whether it was necessary proactively to make a claim for treaty relief is a technical issue which he could not really answer.

It was put to him that he was the trustee through Funcode after the sales took place for some months and he did not contact HMRC to make a claim for relief under the treaty. He said he did not think it was necessary particularly. He said he did not recollect if that understanding was informed by discussions he had had with Mr Morris about his understanding.

On 3 March 2005, Mr Cameron (who took over from Mr Robertson) met with Mr Morris and Mr Blower. It was agreed that (a) HMRC would engage with Lansburys directly in respect of all individuals and settlements advised by Lansburys, and (b) one case would be taken forward with other cases waiting behind it. Initially, this was intended to be Mr O’s case.

In August 2005, the correspondence relating to Mr O, DH and most or all other Lansburys clients was taken over by Mr Peter Wood.

On 2 November 2005, Mr Wood met with Mr Morris and Mr Blower. The notes of meeting show that Mr Wood understood that at the earlier meeting on 3 March 2005, Mr Cameron had proposed that a test case:

“would be selected through which information would be supplied to test the place of effective management argument under the [treaty]. If, in the light of all relevant evidence, DC could concede that the place of effective management had been in NZ while the trustees were resident there, the point could be conceded on all similar cases.”

Mr Wood proposed an agreement to proceed with a test case covering all “the trusts which had exploited the [treaty]”. Lansburys suggested that the test case be Mr E. Mr Wood’s note of the meeting says:

“The points at issue common to the UK/NZ schemes were: -

[1. A point relating to trusts that had been in the UK before the planning and which is therefore not relevant to the appellants.]

2.

Interpretation of Article 4(1) of the DTA – does Article 4(3) apply?

3.

If Article 4(3) does apply, where was the place of effective management while the trustees were based in NZ”

After initial hesitation, Mr Bentley accepted that the “trusts which had exploited the [treaty]” would have included the appellants’ trusts. He did not accept that if Mr Wood had been concerned with the claims issue it would have been described as another point at issue common to all the UK/NZ schemes. He said that (a) “they went very quickly into discussion about the application of the [treaty]”, and the technicalities. He could not see that there had been a forensic analysis done of the returns and at some point there would have needed to have been that kind of forensic assessment so they could point to a document that was a claim, (b) that analysis happened when he took over the enquiry, and (c) this is an avoidance arrangement. The discussion appears to have proceeded on the basis of an assumption that it had been implemented correctly, but when it comes to avoidance it is not unreasonable for HMRC to check on implementation and that is where there appears to have been a failing in these cases. He accepted that the impression a reader would have from the notes of the meeting is that there was no procedural issue with relief under the treaty at that time, and Mr Wood did not take any such issue in the following correspondence. He added that until an enquiry is closed points can arise.

It appears that at this point, as HMRC were dealing with the RTW planning implemented by Lansburys’ clients in the round and identifying a lead case, they were not specifically focussing on issues such as whether formal claims had been made in particular cases. However, it is again apparent that they were proceeding on the basis that the only issue, as regards the RTW planning, was the application and interpretation of article 4 of the treaty.

On 7 November 2005, Mr Wood wrote to Lansburys agreeing to proceed with a test case (Mr E). He asked for information to allow him to come to a view on the POEM of the E Trusts. Mr Morris referred specifically to this letter in his witness statement noting that HMRC set out the issues in this letter and none of them referred to procedural steps.

On 17 November 2005, Lansburys confirmed to Mr Wood that they were collating the requested information.

On 13 January 2006, Mr Wood wrote to Lansburys thanking them for the documents he had received and asking for more information relating to POEM.

On 31 January 2006, Mr Blower wrote to HMRC to ask for confirmation of his understanding of the November meeting. He said “you confirmed you wish to raise only three technical points, namely ...” none of which related to procedural issues/claims.

Mr Bentley first said that the claims issue was a “non-technical point”. He later accepted that an HMRC officer receiving this letter should have replied making it clear that there might have been wider points in dispute on which he was reserving his position if he wanted to be able to raise the claims issue later.

Between January 2006 and August 2006 Mr Wood and Lansburys exchanged correspondence about the application of the treaty.

On 13 February 2006, Mr Wood wrote to Lansburys noting that s 788 ICTA allows relief as appropriate from UK taxation in order to avoid double taxation by another territory and “the instrument of relief from double taxation under s 788 is the treaty”.

Mr Bentley said at this stage there was a difference of view as to whether the POEM test was in point at all as Lansburys’ position was that the trust was only resident in NZ so that there was no dual residence and “it is an incidence of dual residence and if you want to claim treaty relief then that claim needs to be met”. He then accepted that Mr Wood did not reserve his position or offer any caveat and, in the subsequent correspondence with him, there was no suggestion that a claim had not been made and he did not reserve his position. He said Mr Wood appeared to be focused on the technicalities and the application of the treaty was the sole focus of the discussion.

Mr Morris thought it was likely that Mr Blower looked at s 788 at the time. He could not recall any conversation with him about s 788(6) which refers to how to make claims under s 788. It was put to him that there is no evidence that he or Mr Blower turned their minds to s 788(6) after receiving this letter. He pointed out that in his witness statement he referred to this letter and noted that HMRC described in it how, in their view, relief from double taxation would be given in cases involving this type of tax planning but “at no point did HMRC express any concerns that such a claim had not been made”.

They arranged another meeting on 5 October 2006, which appears to have taken place because on 6 March 2007 Lansburys wrote to HMRC following up on discussions at the meeting. The bundles did not contain a copy of any notes from that meeting.

On 8 March 2007, Mr Wood replied saying that he had “submitted the papers for consideration by the appropriate HMRC specialist, who feels that the outcome of the litigated cases will be relevant to this case, DTA wording notwithstanding”. The litigated case referred to is likely to be Smallwood, which was heard by the Special Commissioners in December 2007. There appears to have been a substantial pause in the correspondence relating to Mr E and Lansburys’ cases generally while the litigation in Smallwood proceeded.

Correspondence in 2007 relating to the Murphys

On 9 August 2007, Lansburys wrote to Mr Wood on behalf of the Murphys referring to letters of 6, 9 and 19 July 2007. The bundles did not contain copies of these earlier letters. In this letter Lansburys said:

“for your information -

1.

On 1 March 2002 the non-resident trustees of the settlements of the above individuals retired in favour of trustees tax resident in [NZ].

2.

On 20 March 2002 the [NZ] trustees sold their holdings in non-resident companies wholly owned by them for market value to an arms-length purchaser.

3.

On 3 April 2002 the [NZ] trustees retired in favour of UK tax resident trustees.

We think you will gauge from the above why in our opinion Section 739 ICTA 1988 does not apply to the above individuals for 2002/03.

As we are already in correspondence regarding what effective management means as regards trustee corporations under the [treaty] can these cases be left in abeyance pending the outcome of a case you are taking to the Special Commissioners later this year under the Mauritius/UK double tax treaty. You are already well versed in our arguments as to why chargeable gains realised by [NZ] resident trustees are not liable to CGT (or more correctly cannot be imputed through to the relevant settlors).”

As Mr Morris accepted, this was the first time that HMRC were made aware specifically of the RTW planning involving the Murphy Trusts. He also accepted that in this letter he/Lansburys were not making a claim for relief under the treaty (in the way HMRC require) and there was no attempt in this letter to quantify how much CGT was at stake in the 2001/2002 tax year in respect of the disposals. We note, however, that as Mr Bentley accepted, it is clear from this letter that the Murphys were specifically seeking to rely on relief under the treaty as regards CGT otherwise due in respect of the disposals.

On 3 October 2007, Mr Wood replied in respect of TM. Letters in the same terms were sent in respect of the other three Murphys. In his letter, Mr Wood said: “Whatever our opposing views of the application of the [treaty], we can I [sic] agree I think that the facts are crucial to determining the matter” and he requested documents clearly intended to address POEM of the trusts. He concluded:

“Please note that the time limit for the making of an assessment for 2001/02 expires 31 January 2008. I propose, therefore, to make shortly a Capital Gains Tax assessment for that year on the basis that S86 TCGA 1992 will apply to the gain realised by the trustees.”

As Mr Bentley accepted, it is clear from Mr Wood’s reply that he understood that the Murphys were relying on relief under the treaty and a reasonable person reading this letter and aware of all the correspondence preceding it, would understand that the debate with Mr Wood was about how the treaty applied and not whether it applied at all. Mr Bentley said that the letter is focused very much on the technicalities, the assessments were raised on the basis that s 77 applies and he thought there was an assumption that the planning was implemented as designed. He accepted that there was no mention of the need to claim treaty relief in the other correspondence with Mr Wood set out below.

It was put to Mr Morris that in these letters Mr Wood said that the relevant disposal by the trustees was previously unknown to him. Mr Morris accepted that that is consistent with the position that no trustee tax returns were submitted which contained information about the disposals.

On 19 October 2007, HMRC issued assessments to each of the Murphys in respect of CGT on the disposals.

On 12 November 2007, AM appealed against his assessment. On 14 November 2007, the other three Murphys appealed against their assessments. In each case the grounds of appeal were stated as follows:

“1.

The assessment is invalid as it has been issued out of time.

2.

If not invalid is excessive as any chargeable gain would be considerably lower, and

3.

In any event the chargeable gain is not liable to capital gains tax under the provisions of [the treaty] for reasons well known to HMRC and which are the subject of communication with Peter Wood...”

Each of the appeal letters referred to a specific sum of tax which the Murphys requested to be postponed.

It was put to Mr Morris that, in these notices of appeal and related correspondence, he/his clients intended to appeal against the relevant assessment and postpone the amount of tax and not to make a claim to relief under s 788 ICTA. He said he had already assumed that by way of correspondence with HMRC since 2001 they had accepted that claims could have been made, and if they thought otherwise they could easily have told him within those five/six years that it was not in the form that they wanted and he/Lansburys would have done what HMRC wanted: “why carry on all these years…if you believe there was no claims? We've wasted 20 years, 25 years of my life”. When pressed he maintained that “we thought that if…there wasn’t a claim…this is a claim” and that there were already claims in place but if not this could be treated as such. He then accepted that he could not have thought that in 2007 as, at that time, he did not think it was necessary to make a formal claim; he said he was getting mixed up.

Following further correspondence, none of which suggested there was any doubt that the treaty was in point in relation to the Murphys, on 3 April 2008, Mr Morris wrote to Mr Wood asking whether the Murphys’ appeals could be left “in abeyance pending what might transpire in relation to other [NZ] treaty matters”. On 8 April 2008, Mr Wood wrote to Mr Morris agreeing that the Murphy cases could be suspended on this basis.

On 20 July 2010, Mr Hugh McGillivray wrote to Lansburys saying that he had now taken over from Mr Keenan and that since HMRC’s appeal had been allowed by the Court of Appeal in Smallwood CA he would like to agree the amounts of gains and tax that were in dispute.

On 27 July 2010, Lansburys replied explaining why they believed the different wording in the treaty resulted in a different approach from the UK/Mauritius treaty. Mr McGillivray did not reply to that letter until August 2011.

On 26 April 2011, Mr McGillivray wrote to Lansburys saying that HMRC were “proposing a general meeting with professional representatives on behalf of those persons implementing the scheme to consider any options” for settlement and:

“As you will appreciate from previous correspondence, the Revenue view is that your clients have made a claim and it is for them to show to the Revenue that the point of effective management is NOT IN THE UK.” (Emphasis added.)

Mr Bentley said this letter was sent to Mr Morris and a number of other agents in light of a meeting designed to try and carve a path to settlement when it came to RTW planning; it was a template letter. He accepted that (a) the reference to the claim was not being made in a non-technical sense but said he did not think it was deliberately aimed at Mr Morris and his clients, and (b) it could be read as meaning that Mr McGillivray accepted that the recipients of the letter had made a claim.

In our view, a reasonable recipient of this letter, reading it in the context of the previous correspondence, would take it as meaning that HMRC accepted that Lansburys’ clients who had implemented the RTW planning had done what was necessary from a procedural perspective to make a claim to be entitled to treaty relief – such that the focus was on them demonstrating that the test for relief to apply was met.

On 27 May 2011, Lansburys wrote to Mr McGillivray explaining again why Lansburys believed the different wording in the treaty led to a different result from that under the Mauritius treaty.

On 15 July 2011 or 18 July 2011, Mr Morris met with representatives of HMRC including Mr McGillivray to discuss the RTW cases on which Lansburys had advised. HMRC’s notes of that meeting record Mr McGillivray saying that Mr Keenan’s letter dated 3 August 2009 “outlined the position”. Mr Bentley accepted that Mr McGillivray did not caveat or row back from the position stated earlier by Mr Keenan and he appeared to take exactly the same view as Mr Keenan and that is what one would expect Mr Morris to have taken away from the meeting.

On 19 July 2011, Mr McGillivray wrote to Lansburys following up on the points discussed in the meeting. This letter does not suggest HMRC’s view has changed from that set out in Mr Keenan’s letter dated 3 August 2009.

In the further correspondence Mr McGillivray did not reserve his position as regards the claims issue.

On 3 August 2011, Mr David Lovell wrote to Lansburys setting out HMRC’s analysis of the treaty and why they believed it functioned identically to the Mauritius treaty.

Between August and November 2011 Lansburys and Mr McGillivray exchanged further correspondence about the application of the treaty. A list, which appears to have been attached to a letter from Mr McGillivray dated 14 September 2011, shows that the cases covered by this correspondence include the appellants, Mr O and Mr E. In that letter, Mr McGillivray wrote:

“We are of the opinion that Point [sic] of Effective Management (POEM) has to be considered in the cases for which Lansburys are the accountants…we now need to consider all of your clients’ claims under the DTA that the POEM of their trusts was not the UK.” (Emphasis added.)

We make the same comment on this letter as that made in (3) above.

On 7 November 2011, Mr Paul Callaway wrote to Lansburys saying he had taken over from Mr McGillivray and would be reviewing Lansburys’ cases. Between November 2011 and November 2012 Lansburys and Mr Callaway exchanged correspondence about Mr Callaway taking over the appeals, his plan to conduct a review of the papers and the application of the treaty (as well as some additional issues that do not apply to the appellants). There were delays in this correspondence due to health issues for Mr Morris and Mr Blower’s wife.

Lists attached to two letters from Mr Callaway dated 8 and 9 August 2012 show that the cases covered by this correspondence include the appellants, Mr O and Mr E. This correspondence plainly proceeded on the basis that the treaty applied. For example, Mr Callaway’s letter of 9 August 2012 stated:

“I refer to earlier correspondence with your agent in respect of a claim for relief under the [treaty] in relation to gains that arose in trusts for which you are the settlor.”

As Mr Bentley accepted, the recipient of this letter would have understood that the only issue between the parties was substantive, and that there were no procedural issues.

Mr Morris referred to this letter in his witness statement as further basis for his view that it was common ground that there were no procedural issues. At the hearing he said: “we consciously believed, based on…all the letters that flowed for all that long period that claims had been made. They may not have been made in the form that…HMRC think they should be, but they were definitely accepted as such...by the inspectors dealing with the case”. When it was put to him that his subjective belief at the time was that one did not need to make a claim, he said he may not have believed they needed to make a claim (which we take to mean a formal claim) but he took it that through all those letters that HMRC had accepted that there was a claim, or they would have said they did not accept that and that they wanted the claim in a particular form. He said, in effect, that it may be true that his understanding of the law was that one did not need to make a claim but he “can still have the opinion that claims were made even if in my view was maybe they needn’t be, at an early stage”.

It was put to Mr Morris that given this letter came after the deadlines for claims to be made, this letter cannot have played any part in his thinking about whether to make a claim within the deadline. He said that he can only assume that he believed that what had “passed between us before then was tantamount to a claim”. When pressed he said, he could not recall. He accepted that this follows as a matter of logic and that he knew that identical letters were sent to a number of people who had implemented the planning, and the purpose of the letter was to set out HMRC’s position on a case they were litigating, Smallwood.

We have commented on Mr Morris’ evidence below.

On 13 November 2012, Mr Morris and Mr David Ewart KC met with Mr Callaway and other representatives of HMRC. At this meeting HMRC suggested for the first time in respect of any of Lansburys’ clients that valid claims had not been made. HMRC’s meeting notes state:

“[Mr Callaway] passed over copies of Returns covering the [E] cases and said he could not identify where a claim to DTA had been made. [An HMRC officer] confirmed that a claim was required. [Mr Callaway] suggested that if the claim ought to have been made by the Trusts on departure then it ought to have been repeated on the Settlor’s Return as part of the necessary disclosure (to put HMRC ‘on notice’ as to what was taking place and why no Section 77 gains were being reported). [Mr Morris and Mr Ewart] will review the position.”

On 8 January 2013, Mr Callaway wrote to Lansburys setting out the “Action Points” that he understood had been agreed at the 13 November 2012 meeting which included: “8. You will review & report on the position of DTA claims made by the Trusts and Settlors.” On 21 January 2013, Mr Callaway wrote to Lansburys enclosing HMRC’s notes of the 13 November 2012 meeting and repeated his record of the “Actions Points”.

On 28 May 2013, Lansburys wrote to Mr Callaway with comments on HMRC’s meeting notes including that:

“Based on the returns submitted and the correspondence that has taken place between us over the last ten years we cannot see how you could possibly say there is a “claims position”.

In a letter dated 25 June 2013 Mr Callaway acknowledged receipt of the letter of 28 May 2013 and said he would respond substantively. Mr Bentley accepted that even though Mr Callaway continued to be in charge of these appeals for more than 18 months, until early 2015, he did not appear to have replied to Lansburys on the claims issue.

During 2013 HMRC sought, and Lansburys supplied, documents relating to all of Lansburys’ RTW cases.

On 30 June 2015, Mr Griffiths wrote to Lansburys saying “our position remains as stated in our letter to your clients on 8 August 2012; the tribunal will reach the same conclusion as in the Smallwood judgment”. This is presumably a reference to the letters that were sent to Lansburys’ clients on 9 August 2012 (a draft of which was sent to Lansburys on 8 August 2012). These letters begin “I refer to earlier correspondence with your agent in respect of a claim for relief under the Double Taxation Agreement in relation to gains that arose in trusts for which you are the Settlor”.

As Mr Bentley accepted, Mr Griffiths’ reference to the position set out in the 9 August 2012 letter could fairly lead a reasonable reader to the conclusion that HMRC had dropped the claims issue.

On 30 November 2015, HMRC wrote to many of Lansburys’ clients, including the Murphys, inviting them to settle. Again, these letters stated HMRC’s belief that Smallwood applied and did not refer to the claims issue.

On 28 February 2017, Mr Bentley called Mr Morris to say he had become the latest Compliance Lead for RTW cases.

On 31 May 2017, Mr Morris met with Mr Bentley and two other HMRC officers. Mr Bentley informed Mr Morris that HMRC had reviewed the available documents in Lansburys’ cases. The meeting notes do not record any discussion of the claims issue, but record Mr Bentley saying on several occasions that the cases were likely to be determined by the application of the treaty:

“[Mr Bentley] said that by agreeing [Mr Morris’] position on the options it leads to considering the NZ DTA”

(b “[Mr Bentley] said that in HMRC's view if its [sic] accepted that there's no difference in the DTAs ultimately it comes to POEM”

“[Mr Bentley] said that in his view the cases will come down to POEM in the end”

“[Mr Bentley] added that regardless of whether the shares have been sold there will be occasions of charge in most cases which will give rise to CGT so the matter boils down to POEM and when these occurred”

He said he was not aware whether Mr Callaway responded to Mr Morris on the claims point but noted that he was soon replaced as the HMRC lead on these cases. He accepted that Mr Morris then sent a lot of information to HMRC over the summer of 2013 and Mr Callaway did not write to Lansburys stating the point about claims still needed to be addressed. It was put to him that Mr Griffiths appears to have taken over in January 2015 and in his letter he said that the position remains as stated in the letter of 8 August 2012. He was asked if he could see why Mr Morris would have believed that HMRC were satisfied on the claims issue. He said, having had a successful decision in Smallwood, HMRC believed that the POEM of the trusts would demonstrate that chargeability would fall in the UK. He then said he can see why Mr Morris may think that and accepted it was a fair conclusion for him to have reached.

He confirmed that there was no discussion of the claims position at the meeting of May 2017. He said this meeting took place in the context of him having recently taken over responsibility for the enquiries, and its main purpose was to reinvigorate the Lansburys enquiries, in light of a recent decision in a RTW planning case. They had completed reviews of the enquiry correspondence. They had not had any meaningful discussion with Mr Morris for some time, they were aware there were differences between the Mauritius cases and Lansburys’ cases and they wanted to get to grips with how the Lansburys’ iteration of the planning was designed to work.

When asked why there was no discussion of the claims issue at this meeting, he said “because the discussion was setting the scene…in light of recent litigation. It was having reviewed…the files, but we were more concerned with the level of documentation we had received…What we wanted to do was to get ourselves in…a clean deck…of cases to take forward in as an effective way as possible”. He said, in effect, that he did not believe HMRC/the relevant officers were aware of the claims issue when they had this meeting; it emerged subsequently. He accepted that the review undertaken by his colleagues did not identify the claims issue at this stage but said it was not focused on the implementation but on the technicalities. He said that (a) it was possible that to Mr Morris this might have suggested that HMRC were no longer taking the point but (b) if that was the case, HMRC corrected that understanding at the earliest opportunity subsequent to that meeting. He accepted that this meeting could have implied to Mr Morris that HMRC accepted the treaty applied but not that it could be taken from this that HMRC had dropped the claims point because they had not explicitly referenced it. He noted that HMRC did not say they had considered the claims point and dropped it but rather that these were the matters that they had considered. HMRC’s position at the time was and still is that the trusts were dual resident and hence it would come down to POEM. At the time they had not checked and assured themselves that the scheme had been implemented correctly.

He accepted that (a) in his statement he meant that HMRC have never said in terms they had considered the claims issue and, having done so, accepted that claims had been made, (b) they did say lots of times that there were claims, and (c) at one point he thought that a claim had to be made in a return.

Neither DH’s personal tax return for the tax year 2000/01 nor that submitted by the trustees of the Harris Trust for that tax year make any reference to the disposal.

It is irrelevant what prompted Mr Robertson to open an enquiry into the trustees’ tax return in 2002. For the purposes of s 29(5) TMA information is only made available to an officer if it falls within one of the exhaustive categories in s 29(6). There is no evidence of any information that falls within this save for DH’s personal tax return which makes no reference to the disposal.

Moreover it is highly unlikely that DH provided any information regarding the RTW planning. The consistent position of Mr Morris was that information about the planning did not need to be provided to HMRC by the settlors. That was the position in respect of the Murphys and the advice that Mr Morris gave to BDO who represented another user of the planning.

Mr Robertson’s letter and memo of 23 December 2003 make clear precisely why he decided to issue the assessment and in doing so they illustrate the discovery he had made, namely that the Harris Trust had made a disposal on which it had made a gain, neither that disposal nor the gain were included in DH’s 2000/01 tax return and DH was chargeable to CGT as a consequence of that gain under s 77 as succinctly set out on the memo of the same day.

Hence, Mr Robertson made the discovery when it newly appeared to him that there was an insufficiency in DH’s self-assessment and once his belief that there had been an insufficiency to tax had come to be more than a suspicion. Nothing turns on the precise point in time at which Mr Robertson became sufficiently confident that there had been an insufficiency to tax so as to satisfy the test in s29(1) TMA. A discovery was plainly made at some point before 6 January 2004 when the assessment was issued.

The enquiry into the Harris Trust’s tax return for 2000/01 was opened on the basis that the trustees undertook RTW planning and the questions set out by Mr Robertson in his letter were clearly focused on POEM and identify all the trustees and relevant disposal of shares. Accordingly, that letter demonstrates that Mr Robertson had knowledge of the circumstances of the RTW planning. However, it is apparent that that knowledge could not have been gleaned from the returns HMRC received and there are no other documents in the bundle produced by HMRC which demonstrate where this knowledge came from.

As regards the returns made: (a) there is no mention of the trustees holding the relevant shares or the disposal in DH’s personal tax return for the tax year 2000/01 and there is no evidence as to what further letters or information was sent by DH or on his behalf in respect of that tax year, (b) HMRC have only been able to produce “screen prints” of the trustees return for that year. It was originally a paper one and these prints are merely the product of HMRC’s own inputting manually into their systems certain information. Mr Bentley accepted that he cannot give any evidence as to the inputting of information, (c) when Mr Robertson opened the enquiry into the Harris Trust’s tax return for 2000/01 he also sent the letter and schedule to the adviser who was on the record as the trust’s adviser and who was also DH’s agent, and (d) Mr Bentley says that a file of documents relating to DH would have been maintained by a regional office but that file no longer exists and it is not clear from the documents available (acknowledging they are not all available) why the enquiry into the Harris Trust’s return was opened and no enquiry was opened into the DH return.

In light of the above, it is therefore impossible to tell where Mr Robertson obtained knowledge that the Harris Trust engaged in RTW planning. HMRC are unaware of what documents Mr Robertson might have considered before opening the enquiry in December 2002. The documents available to the tribunal are incomplete, the enquiry letter shows that other information was provided to HMRC before January 2003 and it is impossible to say whether that information was sent on behalf of DH or the Harris Trust or both, particularly when both had the same agent.

Section 29(5) requires HMRC to keep proper records of the information listed in s 29(6) which was available at the relevant time otherwise the protection offered by those sections is meaningless. It is apparent that there must have been further documents/information which prompted the opening of the enquiry which it was incumbent on HMRC to produce. This is a rare case where the burden of proof comes into play given that HMRC cannot put all the documents and information within s 29(6) before the tribunal, particularly in circumstances where other relevant information must have existed in some format. HMRC have simply failed to meet their burden of proof.

HMRC’s argument is fundamentally inconsistent with the decision in Burgess and misunderstands how the burden of proof works. If HMRC’s evidence was that they had systems in place to ensure they kept everything of relevance when they made the discovery assessments and these are all the documents they had under those systems, the appellants would have to prove there was further information. However, in fact HMRC’s evidence is they probably had further correspondence relating to DH but they have lost it. Hence, the burden of proof is on them. Mr Stone’s submissions on this ground are little more than a concession that HMRC cannot actually meet the burden of proof.

For the reasons set out by HMRC, there is sufficient evidence to demonstrate that Mr Robertson made a discovery that, in his view, acting reasonably there was an insufficiency of CGT in respect of the disposal of shares by the Harris Trust. We did not find the decision in Strategic Branding useful given the different factual circumstances in point in that case.

This is a case where HMRC have failed to provide sufficient evidence that the requirement in s 29(5) is met. We note that (a) it is plain that HMRC received information that DH/the Harris Trust had implemented RTW planning in respect of the disposal on the basis that relief was available under the treaty but it is not known where that information came from, (b) HMRC did not retain their file relating to DH’s tax position in respect of the disposal, and (c) HMRC have simply not demonstrated what relevant information/documents they had for the purposes of s 29(5) and (6) TMA by the relevant deadline (31 January 2003). In our view, it would deprive s 29(5) TMA of having any meaningful protection for a taxpayer and render the requirement for HMRC to satisfy the burden of proof on this issue ineffective if, in these circumstances, the tribunal were to seek to plug the gap in the evidence by simply assuming that no relevant documents/information falling within s 29(6) was made available to HMRC by the relevant time, from which a hypothetical officer acting reasonably could have concluded there was an insufficiency of CGT in respect of the disposal made by the Harris Trust. It does not suffice for us to make any such conclusion that there is evidence that generally Lansburys did not advise settlors/trustees to include relevant disposals made under the RTW planning structure in their tax returns. The consistent position of Mr Morris was that information about the RTW planning did need to be provided to HMRC. It is speculation as to what, if anything, of relevance for the purposes of s 29(6) was provided to HMRC but it is for HMRC to keep appropriate records in order to be able to satisfy the burden of proof.

A reasonable officer of HMRC in Mr Robertson’s position would have understood from Allglory’s letter of 21 January 2003 that Allglory was making a claim for treaty relief. Mr Robertson acknowledged that Allglory as trustee of the Harris Trust was relying on the full relief from CGT available under the treaty (most clearly, but not exclusively, in his letter dated 29 July 2004). Mr Robertson did not suggest that a valid claim for relief had not been made and when setting out all the reasons he believed that CGT was due did not refer to the absence of a valid claim.

If the requirement that the claim be quantified means figures must be given, they were given in the letter from Rossiter Smith dated 4 February 2004.

Lansburys, as agent of DH and the Harris Trust, made clear to Mrs March that reliance was being placed on the full relief from CGT available under the treaty and referred Mrs March to Mr Wood.

The facts set out above show that, the trustees of the Murphy Trusts made clear to Mr Wood that they were relying on the full relief from CGT available under the treaty in Lansburys’ letter of 9 August 2007 and in their notices of appeal on 12 or 14 November 2007. A reasonable HMRC Inspector in Mr Wood’s position would have understood that this was what Lansburys and the Murphys/their trusts were doing.

Mr Wood acknowledged that they were relying on the full relief from CGT available under the treaty in his letter of 3 October 2007 and again when agreeing that the cases could wait behind the outcome of other treaty cases. At no stage did Mr Wood suggest that a valid claim for relief had not been made and instead he made clear that his concern was with the POEM of the Murphy Trusts.

If the requirement that the claim be quantified means figures must be given, they were given in the notices of appeal on 12 or 14 November 2007.

None of the documents relied on are addressed to the Board or contain a declaration of accuracy.

As regards DH, none of the correspondence relied on contains an active, deliberate and unambiguous claim for relief:

The correspondence relied on by the appellants in respect of the Murphy Trusts also does not contain an active, unambiguous and deliberate claim for relief from CGT:

The appellants’ evidence is that their understanding in their dealings with HMRC was that all the correspondence with HMRC proceeded on the basis that the treaty applied and the only issues between the parties were the substantive issues; there were no procedural issues such as whether in fact a claim had been made. This is the only understanding one could have had given the content of the correspondence. Mr Bentley accepted that (a) the correspondence between 2001 to November 2012 proceeded on the basis that the only issues between the parties were regarding the interpretation and application of the treaty, and (b) HMRC had said many times between 2001 and 2017 that there had been claims and accepted that the way these cases were dealt with is not normal and it is uncommon for a point to be raised for the first time 11 years after an enquiry was opened.

In the same way as in Tinkler, HMRC have taken at a late stage what can fairly be described, on the facts of these appeals, as a technical point (that some formality necessary to make a claim was not met) even though that has not caused HMRC any prejudice (see Tinkler at [85]). Tinkler shows that an estoppel by convention will arise to prevent such a technical point succeeding. Indeed, other than HMRC being the estopped party, the appellants cannot see any material distinction between these facts and Tinkler.

The correspondence demonstrates that the parties shared a common understanding that there was no procedural bar to accessing relief under the treaty. It is irrelevant whether this understanding was based on a belief that a valid claim had been made or that a claim did not need to be made. Indeed, it seems impossible to know from the correspondence which Mr Robertson believed. Regardless, there was a shared understanding that the treaty was determinative of the issues between the parties and over the course of a decade there was an enormous amount of correspondence between the parties expressing that view.

HMRC conveyed this understanding to the appellants and expected them to rely upon it, by engaging in extensive discussions about the application of the treaty, opening enquiries into the return for the Harris Trust, requesting substantial information about the POEM of the trusts and not suggesting until many years later that there was any procedural reason why the appellants could not rely on the treaty.

The appellants relied on this common understanding by engaging in years of correspondence with HMRC and, in particular, by not making claims within the time limit for doing so (or perfecting imperfect claims within the time limit for doing so), which they otherwise could have done. That reliance occurred during the ongoing correspondence between the parties relating to the enquiries and discovery assessments.

If no valid claims have been made, the appellants have suffered serious detriment by not making claims they otherwise could have made, by being made liable for tax in respect of which they would otherwise have been able to claim relief and by engaging in almost 20 years of stressful, time consuming and expensive debate with HMRC.

In respect of DH, the following conduct of HMRC indicated that HMRC assented to or shared the understanding that the treaty applied to the disposal made by the Harris Trust, is conduct that HMRC must have expected to be relied upon and is conduct that was relied upon:

In respect of the Murphys, the following conduct of HMRC indicated that HMRC assented to or shared the understanding that the treaty applied to the disposals made by the Murphy Trusts, is conduct that HMRC must have expected to be relied upon and is conduct that was relied upon:

Further, in respect of both Mr Harris and the Murphys, the appellants rely on all the correspondence put to Mr Bentley but, in particular, the following conduct of HMRC indicated that HMRC assented to or shared the understanding that the treaty applied to the disposals is conduct that HMRC must have expected to be relied upon and is conduct that was relied upon:

The tribunal should bear in mind the serious implications, especially in a mass marketed avoidance scheme such as this where multiple issues arise during the course of an enquiry, of a finding that HMRC are estopped from taking a point that no valid claim was made. That would mean that in any case in which HMRC come up with an implementation error later down the line they are in danger of being estopped. That would have severe consequences on HMRC’s handling of enquiries. It is relevant that Mr Morris/Lansburys were marketing tax avoidance schemes, had experience of enquiries and would have known that points arise in the course of an enquiry.

The parties were never operating under a common misunderstanding. If there was any misunderstanding, it was, at most, a mistaken assumption that claims for treaty relief had been made. However, the appellants were not operating under the misunderstanding that claims had been made; they were operating under a misunderstanding that claims for relief did not need to be made. Mr Morris’ understanding at the time was that obtaining the relief was somehow automatic and no formal claim had to be made. The HMRC officers who did not raise an issue about a claim for the Murphy Trusts must either have assumed there was a claim or overlooked the requirement for a claim at that stage. They certainly did not share Mr Morris’ misunderstanding of law as to what was required.

HMRC cannot have strengthened Mr Morris’s belief that valid claims had been made because he never had that belief. Moreover, for an officer of HMRC, in the course of correspondence about the application of the treaty to mention the treaty does not show that he objectively intended or expected that that letter would strengthen Mr Morris’ reliance on a common assumption. There is a difference between an objective intention or expectation and an innocent statement that refers to relief in the course of correspondence. For example a request for information in the course of an enquiry into a return in order to consider the location of POEM to enable HMRC to consider an element of the case is not an example of a document that HMRC intended or expected would strengthen the appellant’s case; it is simply par for the course in progressing with an enquiry. The appellants’ decision not to make a claim for relief was driven by the independent opinion of their advisor that a claim was not necessary. Mr Morris was relying upon his own independent understanding of the treaty and not on any comments in the correspondence with HMRC. HMRC never gave Mr Morris any reason to believe that his own belief that no claim was necessary was correct.

The appellants allege that because of the HMRC’s conduct, they did not make claims which they otherwise would have made (notwithstanding their advisor’s understanding that they did not need to make claims). It follows from this that the appellants cannot rely upon any conduct of HMRC after the deadline for making a claim had passed: 5 April 2009 for the Murphys and 31 January 2007 for DH. Once the appellants could no longer make a claim, it is irrelevant whether they were influenced by HMRC into thinking they did not need to make a claim. They could not have done so even if they had been put on notice of their mistake. On that basis, the Murphys must identify some conduct of HMRC that crossed the line between the start of the correspondence on 9 August 2007 and the deadline for making a consequential claim for relief 6 April 2009. For DH the equivalent period is between 19 December 2002 and 1 February 2007.

Certainly no conduct of HMRC can be relevant after they informed the appellants’ representatives that they could not identify a claim and asked the appellants to identify the claims as they did in a meeting on 13 November 2012 and followed this up in writing. If the appellants failed thereafter to take any action to protect their position, that was their responsibility (see, by analogy, Benchdollar at [67]).

There was no conduct of HMRC which “crossed the line” in such a way as to assume responsibility for the appellants’ understanding. HMRC never said they accepted claims were made. Rather, this is a case in which the parties proceeded on the basis that one thing was in issue, and then it was discovered that there had been an implementation error. The tribunal must consider how other enquiries would be affected if it is correct that HMRC is estopped from raising implementation errors. It cannot be the case that HMRC are required at the start of the enquiry to state every point that is going to be in issue in that enquiry. The appellants suggested it would make a difference if each inspector had written: “These are the issues but we reserve our position.” That cannot be the basis for founding an estoppel. That would lead to HMRC including in every letter a note reserving their position. The only unusual thing about this case is the length of time that it took between the start of the enquiry and the actual identification of the implementation error.

It is striking that the appellants rely so heavily on correspondence which either relates to all of Lansburys’ cases as a whole or correspondence which relates specifically to another taxpayer. Whether or not the RTW planning implemented by the appellants worked in principle was an issue that was common to each of the appellants and other clients of Lansburys. However, whether or not that scheme had been implemented properly, including by making a valid claim for relief, was a discrete question which depended on the specific facts for each appellant. HMRC’s officers cannot have expected or intended that the appellants would be influenced in relation to their individual implementations of the scheme by correspondence about legal principles that applied to the scheme in general terms or about another specific taxpayer.

Mr Bentley was very candid that there were opportunities to have managed the enquiry better at an earlier stage. But there were also opportunities for the taxpayer to bring this matter to a head by coming to the tribunal at an earlier stage, rather than engaging in repeated correspondence, seeking to avoid in particular the requirement to identify a claim. It is wrong to suggest that there was any fault of HMRC, in particular from 2012 when the lack of claim was identified.

The early correspondence in relation to other taxpayers has no relevance given it does not relate to the appellants/their Trusts and pre-date all of the appellants’ tax returns for the relevant tax years. In that correspondence, HMRC cannot have given Mr Morris/the appellants any assurances about different taxpayers in future tax years.

The letter dated 7 November 2005 does not relate specifically to any of the appellants. The three bullet points on which Mr Morris relies cannot reasonably be read as being a comprehensive list of every single issue that was raised by all of Lansburys’ cases. This letter simply does not mention the claims issue. More than silence is required to “cross the line”.

The letter of 13 February 2006 was specifically about a different taxpayer. It has no relevance to these appellants. It says nothing about whether Mr E had made a claim for relief or not. Even if it did cross the line, it cannot have done so in such a way as to assume responsibility and to influence the appellants. HMRC expressly drew Mr Morris’ attention to s 788, which provides that obtaining relief under the treaty requires a claim to be made. That cannot have had the effect of giving the appellants comfort that no claim needed to be made.

The letter of August 2007 simply shows HMRC “working the enquiry” and seeking relevant documents which are relevant to one aspect of the matter. At this stage Mr Wood cannot have known anything about what the issues would be in the Murphy cases because he only learnt for the very first time about the transactions. The letter of 2 September 2008 relates to a different client of Lansburys.

By the time of the letter dated 9 August 2012 any claims for relief would have been out of time such that it is irrelevant for the reasons set out above. Although there are two references in this letter to ‘a claim for relief’, the letter is not about whether the correct procedure for claiming relief had been followed. Rather, it is about the effect of Smallwood, and the appellants were being encouraged to make a payment on account because the decision in that case was favourable to HMRC. HMRC did not intend or expect that the passing reference to a “claim for relief” would influence the appellants.

In his letter of 5 September 2012, Mr Morris does not refer to any of the content of the letters dated 9 August 2012 save to complain that they were sent to his clients whilst he was away. There is no suggestion that the contents of those letters had made any impression on him.

The other documents relied on by the appellants set out above were not mentioned in Mr Morris’ witness statement so he/the appellants cannot be taken to have relied on them in the required way.

In these cases there was only an enquiry into the Harris Trust and there is no evidence that the RTW planning was a “mass marketed” scheme. In any event, it does not appear to be disputed that there was an assumption of responsibility as regards DH. The public policy concerns raised cannot possibly apply where HMRC agree to set out all their arguments.

There was a common assumption of law, namely, that the treaty applied. It is irrelevant whether the parties had the same reasons for that common assumption.

As regards the Murphys, it is notable that, as accepted by Mr Bentley, there is no other case in which HMRC accepted that Lansburys’ clients made claims. It is clear that some of the correspondence (not all of it) was intended to apply to all of Lansburys’ clients. Although the correspondence which took place before the issue was raised regarding the Murphys in 2007 cannot be relied on as raising an estoppel, it is not irrelevant. The later relevant correspondence has to be understood in context and the earlier correspondence informs the meaning of that later correspondence.

As regards detriment and unconscionability, the main focus of the appellants’ argument is on the correspondence that preceded the deadline for making claims, but the length of the delay in raising and dealing with the claims issue after that is relevant. It is clear from Benchdollar that conduct/correspondence may be of relevance where it takes place in the period (a) after the date on it comes to light that the common assumption is incorrect and/or (b) after the time limit within which corrective action can be taken has expired. One must take all factors into account including the delay in HMRC fully committing to taking a position on the claims issue albeit the weight one attributes to particular factors may vary. It is notable that following HMRC first flagging the claims issue, they did not then pursue it for five years. The only fair reading of that correspondence is that HMRC dropped the point.

The correspondence demonstrates that, until HMRC raised the claims issue in November 2012, the parties shared a common understanding that the appellants were seeking to benefit from relief under article 14(4) of the treaty and there was no procedural bar to the appellants’ being able to do so. We cannot see that the fact that the precise reason for each party making that assumption may differ affects matters. Mr Morris/the appellants were of the view that they did not have to submit a formal claim to obtain treaty relief provided that the relevant information was somehow made available to HMRC. It is not clear whether the relevant inspectors thought a valid formal claim had been made or that a formal claim did not need to be made or had some other thought. It is clear, however, that both parties were acting on the basis that there was no action required to be taken by the appellants in order for them to seek to rely on relief under article 14(4) of the treaty.

That this was HMRC’s understanding was plainly conveyed to the appellants by HMRC continually referring only to the substantive issue between the parties (namely, whether treaty relief in fact applied on the correct interpretation of articles 4 and 14(4) of the treaty) and asking the appellants/their agents for information relevant to that issue and stating that the resolution of that issue would determine the tax position of the appellants in relation to the transactions undertaken by the NZ trustees of the Trusts. That this was the appellants’ understanding also was plainly conveyed to HMRC by them/Lansburys engaging with HMRC on the substantive issue, providing information relevant to that issue and submitting an appeal against the assessments issued on the basis that treaty relief applied.

HMRC assumed some element of responsibility in relation to the mutual assumption by requiring the appellants/Lansburys to spend time and effort in providing information and engaging in correspondence on the substantive issues. The nature of the engagement by HMRC can only be taken to have strengthened or influenced the appellants in their belief that they were entitled to seek treaty relief. We do not accept that references in the relevant correspondence to the substantive issue and requests for information in relation to that issue constitute “innocent statements” made in the course of HMRC’s exploration of “an element of the case” which were par for the course. The correspondence demonstrates that, as regards all of the appellants, once HMRC were aware they had implemented the RTW planning (when the enquiry was opened into the Harris Trust in December 2002 and in August 2007 as regards the Murphy Trusts) (a) the relevant HMRC officers were fully cognisant of the nature of the RTW planning and, in particular, that it hinged on each of the appellants being able to benefit from relief under article 14(4), (b) the HMRC officers were not exploring elements of the case but seeking to resolve the only material substantive issue, namely, whether or not article 14(4) applied to exempt the gains arising on the disposals, and (c) they can only be taken to have intended and expected that the appellants would take that to be the case from their requests for information and seeking to debate points with them which were only of relevance to that issue. The appellants in fact relied on the mutual assumption in their continued engagement with HMRC on the substantive issue.

That the common assumption was not correct came to light only in 2012 after the appellants could have made a formal claim of the type HMRC state is required. In relying on the common assumption, therefore, they would suffer serious detriment by not being able to seek to benefit from treaty relief they argue is available to them and by engaging in years of debate with HMRC, involving costs and effort, on an issue which, if HMRC are not estopped from raising the validity of the claims, would have been entirely pointless and redundant. In that context, we consider it is pertinent that HMRC did not respond to the appellants’ assertion that there could be no doubt about their ability to claim treaty relief for several years after the appellants made that statement. A reasonable person would assume that HMRC had simply dropped the point. Whilst the appellants could not at that time have made valid in time formal claims, they were prejudiced by continuing to spend time on engaging with HMRC on an issue which is in point only if they could be regarded as having made such claims.

The appellants’ stance is that under article 14(4) of the treaty the gains realised on the disposals are taxable only in NZ as the Trusts were resident only in NZ for the purposes of article 4(1) during the period of relevance, namely, the period when they had NZ Trustees, during which time they made the disposals. During that period as the Trusts were resident in NZ for the purposes of NZ tax and were not resident in the UK for the purposes of UK tax (they became resident in the UK only when UK trustees were appointed shortly after the disposals took place), they were resident only in NZ under article 4(1) and there is no need to apply the tie-breaker in article 4(3) to determine where the Trusts were resident.

In HMRC’s view the gains are taxable in the UK on the basis that (a) the Trusts were resident in NZ for the purposes of NZ tax and in the UK for the purposes of UK tax in the relevant period, which they regard as the UK tax year in which the disposals were made, (b) therefore they were resident in both States under article 4(1) and the tie-breaker in article 4(3) applies to allocate residence to the UK on the basis that the POEM of the trusts was in the UK.

The appellants dispute that, if the tie-breaker is relevant, the POEM of the Trusts was in the UK. The parties disagree on how the POEM test is to be applied.

Mr Morris accepted, in effect, that the documents before the tribunal in respect of DH’s appeal are only a limited selection of documents that were provided to HMRC on 20 November 2003 in response to their request of 19 December 2002. He said Mr Blower dealt with that and he did not know if there were any discussions with DH about the request. He accepted that from a very early stage HMRC asked for documents relevant to understanding what happened in the case of DH. He was taken to the letter in which HMRC accepted the information did not need to be provided at that time but said that it would be required if HMRC needed to consider the POEM of the trust. He said that he thought this just brought into play letters going backwards and forwards. So far as he was aware no requests were made to gather together the requested documents. He was taken to a letter from HMRC of 3 October 2007 in which they asked for a full set of documents regarding the implementation of the planning and asked why the full documents were not produced and are not in the bundle. He said that they “would just respond on the basis of we were substantiating the [treaty] as to whether there was any gain to be taxed anyway”, and everything he had, he had given over. It was put to him there must have been some correspondence between No Boundary and the trustees but it is not in the bundles and he was asked if he asked Mr Paul or Mr Richards for it. He said he did not but probably, in retrospect, it would have been appropriate to do so.

Mr Paul said in his statement that he does not hold copies of any documents relevant to the present appeals. He was asked why he does not hold documents from his roles either with Altech or Funcode and from when he corresponded with the NZ Trustees. He said it was because his documents in those days were stored in a back office in Manila because of spaces restrictions in Hong Kong, and in 2010 his company was taken over by another corporate service provider/bank who told the staff in the back office to destroy anything over five years old. He confirmed that the take-over took place in 2011, so after HMRC’s request for documents on 3 October 2007. He said he did not think he would have had the requested information in 2007 but that he was getting very confused because his office shipped documents down to Manila quite regularly. He then said they were definitely gone by 2007. When asked if Mr Morris requested him to provide these documents in 2007, he said he had asked him but the documents had already been disposed of by the staff in Manila – he thought the files were that old. He accepted this was a change from his earlier response but said he was thinking about it more deeply now.

Mr Richards said that then when he was appointed a new trustee for a trust, he created a file in NZ with a copy of the material recording the appointment, and any other paperwork that he received and further down the track he may have also set up a file for the NZ tax situation, and/or other matters. He thought that the files were largely destroyed many years after the event. In NZ one is required for tax purposes to keep files for seven years and most prudent operators would keep them for ten years. He thought that they destroyed the files around about 2017 and he was not aware that there was a requirement to hold on to any of this information. He confirmed that Mr Morris did not ask him to preserve the files or provide him with a copy of the files.

He and Mr Blower set up John Lansbury Associates Limited in the late 1970s/early 1980s and Lansbury International Limited in April 2001. For ease we refer to either or both of these entities as “Lansburys”.

He and Mr Blower devised the RTW planning implemented by other clients they had and by the appellants. Mr Blower drafted template documentation to implement the RTW planning.

In 2000/01 Mr Morris and Mr Blower lived in Ireland for work purposes and considered they were tax resident in Ireland and not in the UK whilst employed by Lansbury Limited, a company owned by Mr Paul with a branch in Ireland. Mr Morris was living and working back in the UK when this RTW planning was implemented in late 2001 and 2002. We do not have sufficient information to make any finding as to Mr Morris and Mr Blower’s tax status in 2000/01, and in any event we cannot see it has any relevance.

Even though they had their own accountants as advisers, the appellants were all direct clients of Lansburys and that was the case for the Murphys since the 1990s. DH was a client of Mr Blower. The Murphys were Mr Morris’ clients but he only usually had direct contact with TM who passed on his advice to the other Murphys. Advice on the RTW planning was not given in writing and there was no engagement letter/terms of engagement as such.

Lansburys advised DH on setting up his trust in 1991 with a view to different planning to avoid CGT that would otherwise have been paid on the disposal of UK assets or companies with underlying UK assets. In the 1990s, Mr Morris first advised the Murphys to settle their shares in Aerohawk on trust also with a view to CGT planning but that planning became impossible due to a change in legislation sometime in the late 1990s. In fact they sold the underlying business to Enron and the Aerohawk companies ended up holding the cash consideration. He thought the BVI companies were put in place on Lansburys’ advice around the same time as the Murphy Trusts were settled.

He and Mr Blower came up with the initial thoughts about the RTW planning and they knew that they would need offshore trustees to do it. They selected NZ to use for this planning on the basis that the treaty had different wording to that in the Mauritius treaty. Mr Morris had known Mr Paul for many years and trusted him. Mr Paul had previously been involved, since the mid-1980s in CGT planning, not RTW planning, but much of which involved using trusts and had been through many (more than 20) sales when Lansburys were doing CGT planning for other clients over many years.

Lansburys provided Mr Paul with a draft brief to NZ tax counsel and they sought the opinion of NZ counsel before they implemented any RTW planning, crucially as regards establishing that the trusts would be resident in NZ for NZ tax purposes and to check there were no other NZ issues raised by the planning. No specific advice was sought specifically as regards the Murphys’ cases. He agreed that, as regards the Murphys, the aim was to extract the cash from the Aerohawk companies without a charge to CGT.

A letter of 8 April 2000 from Mr Blower in which he said he was “as instructed pressing on with drafting the documentation to implement the CGT planning” shows that by then there had been some discussion about what the planning would be and that Mr Blower drafted the required documentation for implementing it. In 2002 Mr Blower was still involved in the implementation of RTW planning.

The RTW planning Lansburys used in this and similar cases essentially involved having a trustee resident outside the UK who would sell the shares followed by the appointment of UK trustees. That was the essence of the planning. He could not specifically recall any conversations with the Murphys but thought there would have been a discussion on fees with TM.

There was no reason to appoint the NZ Trustees other than the planning and to make the planning work he needed NZ Trustees to implement it. He spoke to Mr Paul to find such trustees and his understanding was that NZ had a favourable regime for offshore trusts and there are a number of established providers of trust companies or trust company services in NZ.

Mr Paul did not go to one of those providers but instead spoke to Mr Richards who was an old contact of his, and when he approached him Mr Richards did not have a trustee company to use. He did not know if Mr Richards had any prior experience or track-record in providing trustee services. He confirmed that (a) Lansburys did not carry out any due diligence on Mr Richards; they accepted that Mr Paul knew him and that he would not introduce them to somebody he did not trust himself, (b) he did not speak to Mr Richards but recommended to his clients that they should put Mr Richards and his wife, who was the other trustee, in control of assets worth millions of pounds, and (c) he did not tell his clients that they were appointing NZ Trustees with no track-record of corporate trustee services.

In his statement Mr Morris said that the NZ Trustees took their own decisions as to how to deal with the trust property, they were aware of the planning and the tax benefits but undertook their own review of the benefits and made their own considerations in deciding whether to proceed with the planning. However, from his own evidence and that of the other witnesses, it is apparent that this is not an accurate description.

It was put to Mr Morris that the lack of any track-record in providing trustee services was not a problem as the NZ Trustees would not be required to do anything other than hold the assets for a few weeks and effect the sale. He said they would have to agree to do it and they would have to implement the purchase and sale agreements. He accepted that the decision to sell the assets held by the Trusts had already been taken before the NZ Trustees were appointed. When it was put to him that therefore they did not have an active decision to make about whether or not to sell, he said “they would have to go through the normal mechanics to make sure there was nothing there that was a problem”. He then accepted that the decision to effect the sale was already taken before they were appointed, so they did not have a decision to take as to whether or not to sell. He said he imagined they would check that the amounts involved were correct but accepted that he does not have any knowledge of any checks or due diligence done by the NZ Trustees and that he knew that they would not have to manage the assets prior to the sale or the funds after the sale because they were only intended to be trustees for a few weeks. It was put to him that it is not correct that, as he said in his witness statement, the NZ Trustees “took their own decisions as to how to deal with the trust property” as they did not actively take a decision. He said “…it’s correct in that they made their own decision. It may have been that they knew what was going to happen but they still had to make that decision themselves” and “they would’ve reviewed that decision and decided whether to proceed or not” but he accepted that he does not have any evidence or knowledge of that.

The correspondence shows that Mr Blower sent to Mr Richards and Mr Leighton, the NZ Trustees and the Initial Trustees (except for the EE trust) the Deeds of Appointment and Removal of trustees. Mr Morris accepted that the expectation was that the deeds would be executed, without any amendment or discussion as to the terms but added that the deed was “just changing the trustees” and that he co-ordinated the paperwork.

He confirmed that (a) at the time the NZ Trustees were appointed the Murphy Trusts effectively owned businesses that just held cash and no other asset and there was a need to find a way of extracting the cash, (b) as part of the planning he already had a buyer lined up to buy the BVI companies, No Boundary; it had already been decided as part of the design of the scheme that it would be No Boundary that would buy those companies and there was never any thought that the NZ Trustees might try to find an alternative buyer, and (c) when the NZ Trustees were briefed as to what they had to do, they would have been told that buyer was going to be No Boundary. He thought that No Boundary had been involved in many similar tax planning arrangements but did not think that was on the monetary or buying sense. It had a different role. He accepted that although in his witness statement he said the sale of shares was done by “an agreement for sale to arm’s length purchasers,” he does not actually know if that was the case or not.

Mr Paul sent the NZ Trustees the trust deeds, trust accounts and the companies’ accounts and explained the planning to them and dealt with any queries. Mr Morris initially said that when he was liaising with Mr Richards about the steps the NZ Trustees would have to take, Mr Paul was acting for No Boundary but then said he was acting for Altech. He initially said he thought Mr Paul did not get paid for this role in co-ordinating and briefing the trustees but it later became apparent that he was paid a fee as set out below.

In his statement Mr Morris said that the NZ Trustees agreed the sale price of the underlying companies as the net asset value of the relevant company less a percentage fee. He accepted that in fact Mr Blower prepared information about the trusts and their assets and provided that information to Mr Paul if not to the trustees as well; it was really that information which determined the sale price, and therefore there was no actual need for any negotiation about those figures. He confirmed that (a) the percentage fee he referred to comprised a 6% discount that was applied to the true value of the assets, (b) that discount was fixed before the transaction was entered into and included fees for Lansburys which he thought was whatever was left after all expenses (such as banking fees) had been paid, (c) so if the value of the assets was 100, the purchaser bought the companies for 94 and after the sale had assets worth 100 and a gross profit of 6, and (d) as No Boundary was wholly owned by Mr Paul effectively his reward for this whole transaction was a cut of the 6% assuming the transaction went ahead (as it did); if it had not gone ahead he would not have received anything, as was the same for Lansburys.

(a) Lansburys’ clients were the settlors not the trustees; the settlors agreed to enter into the planning but Lansburys’ fees were paid out of the trust assets and not paid by the settlors. That did not seem at all problematic to him at the time, (b) in effect, No Boundary transferred a sum of money to Lansburys as their fees: TM would have been told about the fee structure before planning was entered into and would have passed that on and, as the settlors knew the value of the assets upfront, they knew that at the end of the planning they would end up with 94, (c) at some point there was a payment out of the trust of the 94 made by the trustees to the settlors as an appointment from the trust: the UK trustees did that, and (d) it was of fundamental importance to the tax planning that the NZ Trustees resigned before the end of the tax year after the sale took place and (5) all these five appellants could ensure that the NZ Trustees were removed because the settlement deeds gave the settlors the power to appoint and remove trustees.

DH was Mr Blower's client, Mr Morris has no direct knowledge of the facts pertaining to his appeal and all of the information he has in respect of DH derives from documents he had seen as contained in the bundles. He confirmed that DH is still alive and said that he was not giving evidence as he did not want to be involved. He said the same of TM. He accepts that DH received a notice of assessment on 6 January for CGT of £333,120 on 6 January in respect of CGT on the disposal by the trustees of his settlement.

He confirmed that for the Harris Trust the NZ Trustees were appointed in addition to the existing trustees and according to the terms of the appointment, the NZ Trustees and Republic International were required to act together. It was put to him that there is no evidence in the bundle of any contact between the NZ Trustees and Republic International. He said “I don’t know, that may be correct.” We note that there are no documents setting out the decision to appoint NZ Trustees and no minutes of the NZ Trustees deciding to accept the appointment.

Mr Morris accepted that an extract from a sale and purchase agreement dated 30 January, in which the second named party is DH and others, is the only evidence in the bundle of any sale of assets in the case of DH. The extract comprises a long index and only the first page. He accepted that (a) there is no reference in the recitals on the first page to the sale of shares in GED, (b) there is only a list of persons showing the same and address of the shareholder as “Republic International Trust” and the “Number of GED Shares” as 249 “Number of “B” shares” and “Cash”; that is all the information there is about any sale. It was put to him there is no mention in this document of the NZ Trustees at all and the only signature is that of Republic International, there is no signature by the NZ Trustees and there is no documentary evidence of this sale and purchase agreement ever having been sent to or seen by them. After some hesitation and initially saying he thought the signatory signed on behalf of all the trustees he said he could not answer that and he does not know. He confirmed he was not aware of this document ever having been sent to the NZ Trustees. He accepted that on the basis of the documents in the bundle alone, there is no evidence of the NZ Trustees having any involvement in the sale of shares but he thought “there must be a lot more than that”.

He had no knowledge of DH’s case. He was involved in CGT planning for clients of Lansburys before the RTW planning was under consideration. Mr Morris and Mr Blower came up with the idea for this RTW planning, and then brought it to him to get a view on NZ law. As part of ensuring it worked from a NZ perspective they provided him with a draft brief for NZ counsel which he then gave to his business associate, they went through it and made slight amendments. His associate was an English barrister who resided in Hong Kong who specialised in trust law and use of the treaty, and he had the contacts for the chambers from which they got the opinion. Having concluded that the planning worked from a NZ perspective, he then had to find a NZ trustee to act as trustee of the relevant settlements during the sale process.

Altech was paid an annual retainer out of the trust funds for acting as trustee. He remained the trustee through Altech from when the EM trust was set up until the appointment of the NZ Trustees. Whilst he was trustee, he helped Lansburys to implement the planning by, for example, getting counsel’s opinion on NZ law, by locating the NZ Trustees and by liaising with them about implementation of the planning.

When Mr Richards first took on the trusteeship, Mr Paul’s role included briefing him on what the planning involved and the steps that were required to implement it using information and spreadsheets provided by Mr Blower. He provided Mr Richards with the counsel’s opinion (which had been reviewed by another firm of tax lawyers who agreed with it) and Mr Richards said there were no surprises with the conclusions and concurred there was a withholding tax requirement. When Mr Paul was performing this role (of getting counsel’s opinion, selecting trustees and briefing them on the planning) he was working for himself as sole proprietor. He did not consider he was engaged by Lansburys for that purpose. His fee came from the 6% retained when No Boundary bought the companies. There was only a single fee for all his work whether in setting up the planning and subsequent work for Funcode (except that Altech received a retainer as set out above).

He thought Mr Richards had never previously provided trustee services before he contacted him but was not sure of that. He had probably engaged trustee services because he was working for a pretty big IT software company, he did some tax structuring offshore as well for his colleagues, he was a part-time lecturer and he knew what a trust was, obviously. He thought it was probably correct that Mr Richards’ wife had no professional qualifications in respect of providing trustee services. In his statement he described her as an experienced professional who had worked in the administration of schools and companies. He also said that by the time of these transactions, the NZ Trustees had already implemented RTW planning on at least 10 previous occasions in respect of other clients referred by Lansburys and, after the initial briefing stage, he considered they were perfectly able to undertake this type of planning without any further advice or assistance. He accepted in effect that neither the settlors nor Mr Morris asked him to carry out any due diligence on Mr Richards. He said (a) he had known Mr Richards for 20 years; he knows his integrity and knowledge – he is a very smart guy, and (b) one needed somebody with knowledge of trusts, what they are used for, how they are managed, and the fiduciary duties they had to fulfil.

Once Mr Richards had agreed that NZ Trustees were to be appointed, Mr Paul discussed with him that the need for them to enter into a Deed of Appointment and he signed that document with his Altech hat on. He told Mr Richards that, as part of the planning, the trustees would have to sell the Murphy Trusts’ shares in their respective BVI companies to No Boundary which was wholly owned by Mr Paul.

In his statement Mr Paul said that he sent necessary documentation such as the Deeds of Appointment to the NZ Trustees. He was taken to the correspondence which shows that Mr Blower sent the Deeds to Mr Richards. He said that this was duplication in that he dealt with the documents without knowing Mr Blower was also dealing with it; that happened quite often as Mr Blower worked at home. He accepted that there is no documentary evidence of him sending any documents to the NZ Trustees other than the counsel’s opinion and that Mr Blower drafted these documents. He said there were standard templates. He said the comment in his statement was about what generally happened rather than in these particular cases.

Mr Paul confirmed that (a) he never met the Murphys or had any direct dealings with them, (b) the information that he passed to Mr Richards about the Trusts, such as their asset holdings, was supplied by Lansburys, and (c) he never received from the settlors a letter of wishes as to what they wanted to happen with the trust. He said that was because such letters are not legally binding. He seemed to accept that the real reason was that he received his information about what the settlors or the beneficiaries wanted from Mr Morris and Mr Blower and he took that on trust. He added that he believed Mr Morris had the most interaction with the Murphy family and he passed the information to him.

It was put to him that Mr Richards did not have to use any knowledge of trusts or duties because everyone knew that he was only going to be appointed for a few weeks and the only thing he would have to do was to enter into the agreements for the sale of the shares. He said (a) Mr Richards had already done 11 such transactions before he was involved in the Murphy Trusts. He had the practical experience, the knowledge of what templates are used and where everything was, and (b) most of the 11 cases involved RTW planning of the type used here and was for Lansburys’ clients. He did not know if they were all fully implemented, and (c) in all cases where there had been a sale, Mr Richards resigned as trustee before the end of the tax year because he understood that that was an essential part of the planning. It was put to him that when it came to dealing with the Murphy Trusts, because of Mr Richards’ prior experience, Mr Paul was very confident that Mr Richards would do what was required, namely, to enter into the sale and purchase agreement to sell the assets and then retire. He said: “Basically it was an integral part of the planning but it didn’t always go to the plan”. He accepted that, as in these particular cases there was effectively a sale of cash for cash, there was no commercial risk that the transaction could be derailed subject to exceptional circumstances such as force majeure.

Mr Paul signed the agreements for the sale and purchase of the shares as the authorised representative of No Boundary. He advised the NZ Trustees that they would need to enter into the sale of the assets in the trust, and entered into that very same transaction on the other side, as the purchaser. In his statement he said that (a) as director of No Boundary he discussed the latest financial information on the companies held in the Murphy Trusts for determining the fair value of the shares in them and they came to agreement that the fair value would be based on the net asset value as the entities simply held cash less a 6% percentage to cover the effort required to extract the cash from the companies and to cover costs such as bank fees and Lansburys’ fees, (b) No Boundary was the only buyer interested in this transaction and there were no other offers for the NZ Trustees to consider, and (c) he was involved in ascertaining and discussing the value of the Murphy Trusts’ assets on behalf of No Boundary and did not believe there was a conflict of interest as the briefing stage was separate to the pricing discussion and the NZ Trustees were fully aware of his position as director. This evidence was tested as set out below and it is not entirely accurate. In particular, we do not accept that there was any meaningful negotiation of the price and that agreement on it needed to be reached.

It was put to Mr Paul, in effect that he was in a conflicted position as (a) the interest of the seller was obviously to achieve as high a price as possible whereas (b) the interest of No Boundary as buyer was to achieve as low a price as possible. He said that the assets were just cash, there were no fixed assets, so he does not really see it as a practical thing. He accepted that he did not perceive a conflict of interest as the sale price was determined by the cash value of the relevant company and there was no room for negotiation or uncertainty. He said that they were exchanging cash for cash. He accepted that if the value of the asset had been uncertain, there would have been a conflict and the asset value, which determined the sale price, was information provided by Mr Blower. Mr Blower provided spreadsheets but he cannot remember precisely when.

It was put to Mr Paul that there was no negotiation between him/No Boundary and Mr Richards/the NZ Trustees as to the sale price for the companies. He said that they talked about it, “it’s not so much a negotiation, it was a discussion, to see what was logical, and cash for cash, you had no fixed assets in the company, you had no intellectual property in the company, it was just cash. Therefore, you didn’t have to negotiate anything, that was just the fact that we were throwing these ideas around in our heads…..Cash is cash” but less the 6 % deduction.

He seemed to accept that element, the 6%, in effect was fixed. He said he was not clear on the dates, but he thought that it would have been in the original planning. He confirmed that (a) Lansburys’ fees and other expenses were paid out of the 6% such as bank fees, the facility and management fees and the introducer’s fees, (b) in principle the 6% was a figure that was agreed between Lansburys and the settlors before the planning was implemented, and (c) Mr Richards never searched for an alternative buyer who might have been able to offer a lower, say a 4 or 5%, deduction. He thought that was impractical given the time frame involved with the planning and the completion of it and “the fee obviously had a premium….within the time limits in force in the planning. So I doubt you would find anybody who is going to trade on that basis, and have that cash, that type of money, available.” He accepted that the reality is that the whole planning was set up with only one potential buyer in mind, No Boundary. He said that he did not know where the trustees would have sought such a buyer in such a short time frame. He accepted that it was only if the sale to No Boundary proceeded that he and Lansburys would get their fees. He said that was a normal commercial transaction. He seemed to accept that it is not normal that the settlors’ fees to Lansburys were effectively taken out of the trust funds as part of this 6% deduction. He said “you could look at it that way”.

Mr Paul accepted that (a) he had previously informed Mr Richards that it was essential to the tax planning that the NZ Trustees be removed and replaced with UK trustees within the same tax year in which the disposals took place, (b) in accordance with that instruction, the day after the disposals, the NZ Trustees gave their notice of intention to resign, and (c) as the NZ Trustees were to resign straight after the sale, they did not need to worry about managing the assets or investing the sale proceeds. He commented that their duties finished after resignation.

He confirmed that the NZ Trustees were replaced with Funcode. He did not think that Funcode received separate fees for being a trustee; rather his remuneration or reward for acting through Funcode was wrapped up with the fee that No Boundary took.

Mr Paul did not know why there are no documents in the bundles relating to the appointment of funds to the relevant persons. He accepted that during the period from when the trust was first settled until the Murphys and other were appointed as trustees, he was a trustee of the relevant trusts for all bar the few weeks when the NZ Trustees were in place.

It was put to Mr Paul that, as far as he is aware, the NZ Trustees never sought any independent advice about whether to enter into the scheme or whether to sell the assets. He said: “It was explained to them, always, and they never raised any doubts or the need to take independent advice.” He then accepted that they took on trust from him how the scheme worked and that it worked to avoid UK CGT. He thought it was standard procedure for him to show Mr Richards any opinion of UK counsel or anything from Lansburys explaining how it worked. When it was put to him that the NZ Trustees were aware of the steps that they had to take and the order they had to take them in, he said “yes - inasmuch that there were no hiccups along the way, like…any potential buyer or whatever would back out.” He accepted that there was no chance of that in the Murphys case because he was the potential buyer through his company, No Boundary.

He explained that No Boundary was not used as a buyer of assets in the implementation of other RTW planning structures but it had been used as a buyer in other tax planning for other clients - not necessarily in the UK. He said he could not remember who drafted the agreements for the sale of the companies. He thought that given that Mr Blower drafted other documents for the implementation of this planning it could be more likely that he was the one who drafted them but it depended on an individual’s workloads. He confirmed that as regards the Murphy Trusts, the trustees did not use any of their own documents but entered into documents that were provided to them.

Mr Paul contacted him with a business proposal in early 2000 to assist Mr Paul and Lansburys with the implementation of tax planning arrangements for some of Lansburys’ UK clients; as part of that proposal he was due to act as the corporate trustee for a number of trusts; to that end he incorporated two companies. It was put to him that Mr Paul explained to him at that stage each of the steps involved in the plan. He said, in very general terms, he was aware of the overall picture that a number parties were involved, Lansburys in London, Mr Paul in Hong Kong, and himself in NZ. He was aware of that chain. But in terms of going into detail on it “not particularly”. He certainly understood that that they would be appointed trustees of a number of trusts, and in doing so they would pick up some obligation to those trusts; he said this is a standard situation with trustees.

It was put to him that he understood that this planning would involve him, as trustee, selling the assets of the trust. He said that on day one he was not sure that was put quite that clearly but it was not terribly long before it became apparent that was a part of the activity. He said that at the outset he saw a legal opinion that supported the work that was being envisaged. He understood the NZ tax position but the “tax implication overseas was, I would have to say, much less understood by us”. He accepted that to the extent he had any understanding of the UK tax position, it was based on what he was told by Lansburys and Mr Paul. His main contact by far was Mr Paul in Hong Kong. He was asked if Mr Paul explained to him that the purpose of this planning was to avoid CGT on the sales. He was not sure that Mr Paul would ever have used the word “avoid”. He knew it was part of tax planning in the wider sense and it was a tax planning exercise. Mr Paul did not explain to him that the purpose of the planning was not to pay any CGT on the sale of the companies in so many words; it was not spelled out that clearly.

In his statement Mr Richards said that (a) whilst he knew what the planning involved, he always considered as trustee whether this plan was in the best interests of the beneficiaries and took an independent decision in line with his fiduciary duties to proceed with the tax planning, (b) he would not have taken any steps in breach of his fiduciary duties or without proper consideration, and (c) he was aware from the outset that Mr Paul was a director of No Boundary and he gave a similar description of the process for “agreeing” the price for the sale of the shares by the Murphy Trusts as Mr Paul gave. We do not accept the evidence in (a) and (c) is accurate as set out below.

We note that the minutes recording the NZ Trustees’ consideration of the sales of the share are in similar wording. By way of example, the minutes in respect of TM’s trust provide as follows: