United Kingdom Special Commissioners of Income Tax Decisions

 


SPC00503

Information; production of documents; company; notice to produce documents etc for purposes of enquiry; jurisdiction of the Special Commissioners; location of Special Commissioners' hearings, considerations to be taken into account in deciding on location

THE SPECIAL COMMISSIONERS

	SPRING SALMON & SEAFOOD LIMITED	Appellant
	- and -
	COMMISSIONERS FOR HM REVENUE AND CUSTOMS	Respondents

Special Commissioner: J GHOSH

Sitting in London on 21 July 2005

for the Respondents: Ms F Fraser (HMRC Solicitor's Office), Mr S Read (HMRC)

DECISION

1. This is an appeal by Spring Seafood & Salmon Limited ("the Appellant") against notices issued by HM Revenue & Customs ("HMRC") under the Finance Act 1998, Schedule 18, paragraph 27, for the return periods ended 31st July 2002 and 31st July 2003.
2. The appeal also raised an issue as to the correct legal jurisdiction of the appeals, in that the Appellant made an application for the appeal to be adjourned, so that it may be heard in Edinburgh rather than London. 3. Finally, the Appellant was unrepresented and did not attend the hearing. I have had to consider whether the failure to attend was of itself a good reason to adjourn the hearing.
4. The case for HMRC was presented by Mr Read who made submissions on FA 1998, Schedule 18 and by Miss Fraser of HMRC's Solicitor's Office, who made submissions as to jurisdiction. Mr Read produced a substantial skeleton argument, amplified by an even more substantial summary of written submissions. Miss Fraser produced a skeleton argument. There were two main bundles and several smaller bundles of documents. The smaller bundles were presented to me during the hearing.

A The substantive appeal on the Notices for 2002 and 2003

4. History of the issue of enquiry notices

The Appellant is a company incorporated in the UK on 13th March 1998. The Appellant began trading as seafood suppliers on 1st March 1998. The Appellant's registered office is 5 Albyn Place, Edinburgh, EH2 4NJ. Mr Read and Miss Fraser both put to me that the Appellant had its trading premises in England (Reading). Miss Fraser made this submission in paragraph 5 of her skeleton argument. Mr Read explained that a Tax Agreement (see paragraph 48) made on 24 May 2004 between HMRC and the Appellant (amongst others) was signed in Reading because the Appellant's trading premises were there. The Appellant, in an email dated 20 July 2005 disputes this (see paragraph 44 and paragraph 63). The Appellant has 200,000 £1 ordinary shares, all of which are owned by Bala Limited ("Bala"). Bala is a company incorporated in the British Virgin Islands and administered in Guernsey. This is apparent from the accounts for the Appellant, for the accounting periods ended 31st July 2002 and 31st July 2003, copies of which were presented to me by Mr Read. The shares in Bala were, at the material times, in turn, owned entirely by a discretionary settlement, the "Maclennan Trust", the trustees of which were resident in Guernsey. The Maclennan Trust was created on 27th August 1997. The settlor is not identified on the Trust Deed. However, the beneficiaries included Mr Roderick Christopher Thomas ("Mr R. C. Thomas"), Mr Stuart James Thomas ("Mr S. J. Thomas") and their respective immediate families, who are identified at Clause 1A and the Third Schedule of the Trust Deed. Mr S. J. Thomas and Mr R. C. Thomas were also partners of a partnership, styled the S&R Thomas Partnership, which commenced trading on 1st May 1998. The trade of the S&R Thomas Partnership was described upon the firm's first return as "consultants and seafood dealers". Mr Read presented a Schedule, prepared by reference to the S&R Thomas Partnership's accounts, which demonstrated that 97.17% of the partnership's purchases were from a company called Thomas Lindh Limited (previously known as Spring Salmon Limited), a company owned by the Thomas family and 86.4% of the partnership's sales were to the Appellant.

5. By a "Minute of Agreement" dated 24th July 2002, the Appellant purchased the entire business and assets, including goodwill, of the S&R Thomas Partnership for £2,835,000. At clause 3.2 of the Minute of Agreement, the consideration is apportioned as follows: £2,800,000 for the goodwill, and £35,000 for the stock of the S&R Thomas Partnership. The S&R Thomas Partnership ceased trading after the sale of its trade and assets to the Appellant. Mr S. J. Thomas and Mr R. C. Thomas, as partners in the S&R Thomas Partnership, each declared a capital gain of £1,400,000 for the year of assessment ended 5th April 2003, which they each self-assessed as a capital gain which benefited from business asset taper relief within TCGA 1992, Section 2A and Schedule A1. The Appellant has, in its corporation tax selfassessment for each of the accounting periods ended 31st July 2002 and 31st July 2003, treated the goodwill acquired as an intangible asset which is relieved under Finance Act 2002 ('FA 2002'), Schedule 29.
6. HMRC is challenging the proposition that the Appellant obtains relief under FA 2002, Schedule 29 in respect of the goodwill it acquired as part of the acquisition of the trade and assets of the S&R Thomas Partnership. Mr Read outlined six separate areas of concern, namely:-

(i) that Mr R. C. Thomas and Mr S. J. Thomas, as partners of the S&R Thomas Partnership, were "related parties" under paragraph 95 of Schedule 29, so that relief was precluded by the transitional provisions contained in Schedule 29, Part 14;

(ii) the goodwill may, according to HMRC, be an "existing asset" as at 1st April 2002 so that Schedule 29 relief is not available by virtue of paragraph 118;

(iii) the payment of £2,800,000 by the Appellant to Mr R. C. Thomas and Mr S. J. Thomas was not an arm's length transaction and may well represent an overpayment, above market value, for the goodwill. So even if the goodwill is not an "existing asset" and the relief is available to the Appellant, such relief is restricted to its market value as the transaction is between related parties (paragraph 92(1) of Schedule 29);

(iv) in response to a question from me, Mr Read also said that HMRC considered there to be a serious risk that the sale of the trade and assets by the S&R Thomas Partnership to the Appellant was motivated for tax avoidance reasons, so that Schedule 29, paragraph 111 would apply to deny relief in any event;

(v) the sale of the trade and assets by the S&R Thomas Partnership, to the Appellant, was made at an overvalue. That overvalue represented disguised remuneration paid by the Appellant to Mr R. C. Thomas of £2.8 million with resultant PAYE and NIC liability on the Appellant;

(vi) alternatively, the overvalue paid for the business (including goodwill) by the Appellant represented a distribution made by the Appellant to Mr R. C. Thomas. The distribution would not be eligible for relief under FA 2002, Schedule 29.

The Appellant's return and accounts for the accounting period ended 31st July 2002

7. Messrs Kirkpatrick & Hopes, accountants and auditors to the Appellant, submitted a corporation tax self-assessment return for the accounting period 1st August 2001 to 31st July 2002, together with financial statements and accounts for the same period and a corporation tax computation with a letter dated 9th September 2003. This corporation tax return was amended under cover of a letter dated 23rd July 2004, which was submitted by Mr R. C .Thomas, on behalf of the Appellant, which letter also included the corporation tax selfassessment return and supporting documentation for the period ended 31st July 2003 The amendment reflected the change to the Appellant's accounting policy to amortise the goodwill acquired from the S&R Thomas Partnership. The amendment comprised an amended tax computation containing a short calculation.

Return for the period ended 31st July 2003

8. As I have already observed, the corporation tax self-assessment return and supporting documents for this accounting period was submitted by Mr R. C. Thomas on behalf of the company on 23rd July 2004.

The enquiry

9. On 26th October 2004, Mr Read wrote to Mr R. C. Thomas, stating that he intended to commence an enquiry under Finance Act 1998 ('FA 1998'), Schedule 18, paragraph 24, for the accounting period ended 31st July 2002, into both the return as first delivered on 9th September 2003 and as subsequently amended under cover of the letter dated 23rd July 2004. A notice under FA 1998, Schedule 18, paragraph 27 was issued to the company. Mr Read also wrote to the Appellant on the same date in respect of the accounting period ended 31st July 2003, again, stating that he was commencing an enquiry. A notice for the accounting period ended 31 July 2003 was issued. Mr Read also wrote on 26th October 2004 to Mr R. C. Thomas, regarding the commencement of an enquiry into each of the Appellant, S&R Thomas Partnership, Mr R. C. Thomas and Mr S. J. Thomas personally. This last letter cross-referred to the two other letters of 26th October 2004 and explained that the purpose of the enquiry was to consider the tax consequences of the transfer of the trade and assets of the S&R Thomas Partnership to the Appellant, which "has tax consequences with the company, the partnership and the personal returns of the partners which explains the scope of [the] enquiry". This last letter also enclosed copies of the respective notices of enquiry issued to the Appellant. All of these letters, and the notices of enquiry were also e-mailed to Mr R. C. Thomas. There is no doubt that the respective letters and notices of enquiry were received by Mr R. C. Thomas. Receipt has been acknowledged.
10. The Appellant appealed by letter dated 25th November 2004, against the enquiry notices on the following grounds:

(i) that the enquiry was seriously prejudiced because the Inland Revenue (as it was then) had already determined that the price paid by the company for the goodwill was significantly in excess of market value;

(ii) that the company was unfairly treated because no opportunity was given for the company to provide the information voluntarily;

(iii) information and documents had been demanded which were not relevant to the issue under enquiry;

(iv) information and documents had been demanded which were subject to legal and professional privilege.

11. The same letter also applied for closure notices in respect of both return periods but the Appellant has since decided not to proceed with the application. A fresh application was made by the Appellant on 20th July 2005 for the appeal to be heard by the General Commissioners for Edinburgh North or, alternatively, for the appeal to be transferred so that the Special Commissioners heard the appeal in Edinburgh. I deal with this application as a separate point below.

B The law

Time limits

12. The relevant law is contained in FA 1998, Schedule 18. Paragraph 24 provides:-

"(1) The Inland Revenue may enquire into a company tax return if they give notice to the company of their intention to do so ("notice of enquiry") within the time allowed.

(2) If the return was delivered on or before the filing date, notice of enquiry may be given any time up to twelve months from the filing date.

(3) If the return was delivered after the filing date, notice of enquiry may be given at any time up to and including the 31st January, 30th April, 31st July and 31st October next following the first anniversary of the date on which the return was delivered.

(4) If the company amends its return, notice of enquiry may be given at any time up to and including the 31st January, 30th April, 31st July and 31st October next following the first anniversary of the day on which the amendment was made."

Scope of the Notice

13. So far as the scope of the enquiry is concerned, the documents and information requested in any notice to produce documents or information is governed by paragraph 3 and paragraph 27 of FA 1998, Schedule 18.
14. Paragraph 3(1)(a) provides that:-

"The Inland Revenue may by notice require a company to deliver a return (a "company tax return") of such information, accounts, statements and reports –

(a) relevant to the tax liability of the company, or

(b) otherwise relevant to the application of the Corporation Tax Acts to the company,

as may reasonably be required by the notice."

15. Paragraph 27 provides that:-

"(1) If the Inland Revenue give a notice of enquiry to a company, they may by notice require the company –

(a) to produce to them such documents in the company's possession or power, and

(b) to provide them with such information, in such form,

as they may reasonably require for the purposes of the enquiry."

16. It follows that the scope of documents and information required of a company, under paragraph 27 is confined to such documents and information which are (Meditor Capital Management Limited v Feighan [2004] STC (SCD) 273):-

(i) relevant to the company's tax liability;

(ii) within the company's possession or power; and

(iii) reasonably required for the purposes of the enquiry.

"Reasonable" takes it ordinary English meaning and is not the converse of socalled Wednesbury unreasonableness (Associated Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223) since the requirement relates to a demand for documents and information by the Executive in exercise of tax compliance powers, not the exercise of administrative discretion. The appeal is conducted in the same manner as an appeal against an assessment: Schedule 18, paragraph 28(3). Thus the onus of proof is on the Appellant: Taxes Management Act 1970, Section 48(2)(b), Section 50(6).

Scope of the notice of enquiry for the period ended 31st July 2002

Documents

17. The notice seeks the following classes of documents:-

"1. nscopies of all company documents which record, note or minute any discussion, meeting or decision by the board of directors of the company relevant to the purchase of the trade of the partnership.

2. copies of all company documents which record, note or minute any discussion, meeting or decision by the board of directors of the company relevant to:

a. the basis and quantification of the value of the goodwill in the accounts,

b. the estimated useful life of the goodwill at four years in the accounts,

c. the company's policy to take a full year's worth of amortisation in the accounts in the year of acquisition,

d. the change of accounting policy as applied to goodwill and the amortisation of the goodwill in the company accounts for the period ended 31 July 2003 (leaving the prior period adjustment and restatement of the profits for the year to 31 July 2002 resulting in the amendment of the company's corporation tax self-assessment for the return period ended 31 July 2002 as submitted in July 2004).

3. copies of correspondence (by letter, fax or e-mail) between the company directors and/or shareholders relating to the purchase of the trade of the partnership by the company including the e-mail of 9 July 2002 from Mr R C Thomas to Mr Dadd (but excluding the letter in reply from Mr Dadd to Mr R C Thomas of 10 July 2002 provided with [the Appellant's] letter of 1st October 2004).

4. copies of all of the company documents which record, note or minute any discussion, meeting or decision by the participators in the company relevant to the purchase of the trade of the partnership (with the exception of the resolution by Bala dated 24 July 2002 provided with [the Appellant's] letter of 1 October 2004)

5. copies of all correspondence (by letter, fax or e-mail) between the company and any accountants, auditors, solicitors or other professionals concerning:

a. the proposed purchase of the trade of the partnership by the company,

b. the establishment of the fair value of the tangible and intangible assets and the liabilities of the partnership as at the date of acquisition by the company, and

c. the valuation and economic life of goodwill and the amortisation of goodwill;

6. a copy of any professional valuation of the trade of the partnership and its component parts including valuations of (as per Clause 1.1 of [the Minute of Agreement which effected the sale of the trade and assets of the S&R Thomas Partnership to the Appellant]):

a. the current contracts and engagements held,

b. stock,

c. and goodwill together with the rights to exclusivity and all rights under [a commission contract with Credenza Limited, the rights under which formed part of the goodwill of the business acquired under the Minute of Agreement];

together with any other document, recording or explaining how the fair value of the assets and liabilities was established (see also Item 13 below).

7. in relation to the [Minute of Agreement]

a. copies of any side letters or other correspondence between [the Appellant] and [the S&R Thomas Partnership] concerning, relevant to, or supplemental to, the [Minute of Agreement],

b. copies of all of the contracts and engagements which were transferred by the [Minute of Agreement], including the commission contract between the partnership and Credenza Limited referred to in Clause 1.1 of the [Minute of Agreement],

c. copies of each Agreement of Novation of consent to assignation by the other party and all correspondence in relation thereto (as referred to in Clause 7.2 of the [Minute of Agreement]),

d. copies of all contracts held in trust by the partners under the terms of the [Minute of Agreement] (as referred to at Clause 7.2.2),

e. copies of all records of business transferred under Clause 9.2 of the [Minute of Agreement].

8. a copy of the trading and loan accounts of Messrs S&R Thomas with the company for the return period (see also 10 below).

Information

9. an explanation of the commercial and business reasons why the directors of the company decided to purchase the trade of the partnership;

10. in relation to the trading and loan accounts of Mr R. C. Thomas and Mr S. J. Thomas (jointly or severally) with the company, an analysis of each entry in the account for the return period to include such details as:

a. the date and amount of each transaction,

b. the payer and payee,

c. a description of the transaction,

d. a description of the means of payment or receipt i.e. "cash", "cheque", "set-off" or "contra";

11. an explanation of the reasons for the change in accounting policy concerning goodwill and the amortisation of goodwill insofar as not provided under Item 2 above; 12. an explanation as to the reasons why the directors of the company consider that the company and the partners of the partnership are not related parties within the terms of Part 12 "Transactions between Related Parties" of Schedule 29 of Finance Act 2002 (including an explanation as to the relevance of the letter of 12th March 2003 from Olsens to Mr R. C. Thomas provided with the letter of 1 October 2004);

13. if there was no professional valuation of trade of the partnership as in 6 above, full particulars of the valuation methods used, the factors considered, the calculations prepared and any other information which was available to allow the directors to value (as per Clause 1.1 of the [Minute of Agreement]):

a. the current contracts and engagements of the vendors with customers,

b. stock, and

c. goodwill together with the rights to exclusivity and all rights under the commission contract with Credenza Limited;

14. an analysis of the associated sales and cost of sales (if any) reflected in the accounts for the return period ended 31 July 2002 from the contracts novated, assigned or held in trust in consequence of the [Minute of Agreement]."

Scope of the Notice for the period ended 31 July 2003

Documents

18. The notice for the accounting period ended 31st July 2003 required the Appellant to produce the following documents:-

"1. copies of all company documents which record, note or minute any discussion, meeting or decision by the board of directors of the company relevant to the change of accounting policy applied to goodwill and the amortisation of the goodwill in the company accounts for the period ended 31st July 2003 (leading to the company's corporation tax self-assessment for the return period as submitted in July 2004).

2. copies of all correspondence (by letter, fax or e-mail) between the company and any accountants, auditors, solicitors or other professionals concerning the accounting policy of the company in relation to the goodwill and amortisation of the goodwill.

3. a copy of the trading and loan accounts of Messrs S&R Thomas with the company for the return period (see also 4 below).

Information

4. in relation to the trading and loan account(s) of Mr R. C. Thomas and Mr S. J. Thomas (jointly or separately) with the company, an analysis of each entry in the account for the return period to include such details as:

a. the dates and amounts of each transaction,

b. the payer and payee,

c. a description of the transaction,

d. a description of the means of payment or receipt i.e. "cash", "cheque", "set-off" or "contra";

5. an analysis of the associated sales and cost of sales reflected in the accounts for the return period from the contracts novated, assigned or held in trust in consequence of the [Minute of Agreement]."

C Decision as to time limits in relation to the 2002 and 2003 Notices

19. The two notices of enquiry both comply with the provisions of paragraph 24. The Appellant's return for the period ended 31st July 2002, was delivered on 9th September 2003. On any view, it was delivered after the filing date and the rule in paragraph 24(3) applies. A notice of enquiry into the return had to be issued by 31st October 2004, under paragraph 24(3). It was issued on 26th October 2004. The enquiry notice specifically informs the recipient of the intention to enquire both into the return and the subsequent amendment. The time limit for enquiry into the amendment of the return for the period ended 31st July 2002, which was made on 23rd July 2004, was 31st July 2005. The enquiry notice was issued on 26th October 2004.
20. In relation to the notice of enquiry for the accounting period ended 31st July 2003, this return was, as I observe above, dated 23rd July 2004. Thus the return was delivered before the filing date and the notice of enquiry had to be given prior to 31st July 2005. The notice of enquiry was given on 26th October 2004.

D Decision as to the scope of notices of 2002 and 2003

21. I confirm the notice for the accounting period ending 31st July 2002 ('the 2002 notice') for all of the items specified in the notices other than Item 8, Item 10 subject to the general qualification that all of the items so confirmed exclude documents and information covered by legal and professional privilege [legal adviser - client privilege in Scotland]. This is particularly relevant for Item 5 of course. I set aside the 2002 Notice in respect of Item 8 and 10. I confirm Item 1, 2 and 5 for the notice for the accounting period ended 31 July 2003 ("the 2003 notice") but also subject to the qualification that the documents and information I confirm exclude documents and information subject to legal and professional privilege/legal adviser - client privilege. I set the 2003 notice aside in respect of Items 3 and 4.

E Reasons for the Decision

Relevance: 2002 Notice

22. In relation to the 2002 notice, Items 1, 3, 4, 5 and 6 are all relevant to ascertaining whether the transaction was solely or mainly motivated for tax avoidance reasons, whether the transaction was made on arm's length terms and whether Mr R. C. Thomas and/or Mr S. J. Thomas were related parties in relation to the sale of the trade and business of S&R Thomas Partnership to the Appellant. The same is true of Item 9 and Item 12. Item 2(a), 2(b) and 2(c), and Item 13 go to the value of the goodwill which, quite apart from informing the answer to the question as to whether the transaction was one at arm's length and for solely or mainly tax reasons, or, otherwise, commercial (nontax) reasons, are clearly relevant to the market value of the goodwill, should the transaction indeed have been between related parties for the purposes of Part 12 of Schedule 29. Item 2(d), relating to the change of accounting policy, is relevant to the commercial bona fides of the transaction, as explained by Mr Read in the course of his oral submissions. The Appellant had originally taken a debit of some £700,000 which was then reduced, due to the change of accounting policy, to £400,000. (see the financial statements for the year ended 31 July 2003, Note 19). Mr Read explained the Revenue's concern that this was to manipulate the quantum of the relievable debit so that a larger debit was available to shelter more profits in future years which suggests that the transaction was undertaken solely or mainly to generate this debit in the hands of the Appellant and not for any commercial, non-tax reasons. It is thus relevant to the arm's length nature of the transaction and the potential application of Schedule 29, paragraph 111. Item 7 is simply a request for all of the legal documentation which either effected or were the subject of the transaction which is itself under scrutiny and hence self-evidently relevant to the commercial rationale of the transaction itself and the valuation of goodwill. The same is true of Item 14.
23. Item 11 of the 2002 notice also goes to the same issue of manipulation of debits and I confirm it.
24. In relation to Item 8 of the 2002 notice, that is, a copy of the trading and loan accounts of Messrs S&R Thomas with the company for the return period, Mr Read submitted that an examination of these loan accounts held by Mr R. C. Thomas and Mr S. J. Thomas to ascertain what payments were made on these accounts was relevant to the Appellant's corporation tax liability in that these accounts had some relationship to the loan account into which the outstanding consideration price of £2,800,000 was booked by the Appellant. I do not understand that submission. I do not follow why movements in an account established between Mr R. C. Thomas and Mr S. J. Thomas with the company is relevant to the question of the commercial bona fides of the transaction under which the Appellant acquired the trade and assets of the S&R Thomas Partnership, or the valuation of goodwill. It was no part of Mr Read's case that sums were being paid to or by Mr R. C. Thomas or Mr S. J. Thomas on the one hand and the Appellant on the other were either disguised remuneration or distributions which affected the Appellant's tax liability (whether in respect of PAYE, NIC or in producing a corporation tax deduction for Schedule D Case I purposes). If Mr Read had put to me that the Commissioners had a concern that payments made on these accounts represented such disguised remuneration or distributions, copies of the trading and loan accounts would have self-evidently been relevant to the Appellant's tax affairs. However that is not what was put to me. Indeed, in response to a question put to me, Mr Read expressly declined to take the point that the relevant payments were either disguised remuneration or distributions (in relation to Items 8 and 10 of the 2002 notice and Items 3 and 4 of the 2003 notice). Accordingly I do not consider that Item 8 is relevant to the Appellant's tax liability (at least on the arguments put to me) and I set the notice aside in respect of Item 8. 25. In relation to Item 10 of the 2002 notice, Mr Read put the same submissions to me as he had done in relation to Item 8. On reflection, Mr Read sought only information in relation to the "loan accounts" of each of Mr R. C. Thomas and Mr S. J. Thomas with the company (that is, Mr Read excised the reference to "trading accounts" in Item 10). However, for the same reasons as I gave in relation to Item 8, I cannot see the relevance of either the trading accounts or the loan account and I set the notice aside in relation to Item 10 also.

Privilege

26. I should also add that, in relation to Item 5 of the 2002 notice – requesting "copies of all correspondence … between the company and any accountants, auditors, solicitors or other professionals …" -- I set the 2002 notice aside insofar as Item 5 (or any other documentation or information sought by the Commissioners for that matter) is encompassed by legal professional privilege. There is no doubt that the Commissioners are not entitled to such documents: Three Rivers District Council and others v Governor and Company of the Bank of England (No 6) [2005] 1 AC 610. I see no basis for suggesting that the ratio of Three Rivers would not be applied in Scotland if Scots law were the governing law in any substantive appeal as to liability. I am troubled that the notice does not make it clear to the Appellant (particularly given that there is no evidence whatsoever that either of the Appellant's directors is professionally qualified, certainly as a lawyer) that the Appellant need not yield such privileged communication to the Commissioners. It is important that this is made clear, as a matter of standard procedure, in all notices of enquiry. Otherwise an unqualified appellant or other recipient may well unwittingly waive privilege simply because he knew no better. It is not yet clear to me whether the substantive appeal as to liability (if there is ever such a hearing) is governed by Scots or English law. At present this does not matter. Whichever notice of privilege applies, it protects the Appellant from any obligation to disclose documents or information in respect of either the 2002 or 2003 notice.

Relevance: 2003 Notice

27. In relation to the 2003 notice, Items 1 and 2 go to the commercial rationale and bona fides of the transaction and its arm's length nature and are clearly relevant for that reason. I add the same qualification in relation to Item 2 (indeed all of the items of documents and information sought in the 2003 notice) of the 2003 notice that I added to the 2002 notice, that the 2003 notice can only extend to documents or information that are not privileged, and set the 2003 notice aside to the extent that it does not limit itself to documents to which legal and professional privilege (legal adviser - client privilege) does not attach. Item 5 is relevant to the valuation of the goodwill. The same arguments in support of HMRC seeking Items 3 and 4 of the 2003 notice were put to me as were advanced in relation to Items 8 and 10 of the 2002 notice. For the same reasons that I cannot see the relevance of Item 8 and Item 10 of the 2002 notice, I cannot see the relevance of Item 3 and Item 4 of the 2003 notice (again, at least in the arguments put to me) and I set the notice aside in respect of Item 3 and Item 4 of the 2003 notice for the same reasons as in relation to Items 8 and 10 of the 2002 notice.

Reasonableness: 2002 and 2003 Notices

28. In relation to the requirement of reasonableness, this has two facets. Firstly, the documents and information specified in a notice of enquiry must be "reasonable" in that to obtain them must not be too onerous for the company subject to the notice of enquiry. Secondly, the documents and information must be "reasonable" in a different way, namely that it must be "reasonable" for the Commissioners to consider them "relevant" to the company's tax affairs. Here, the Commissioners' concerns as to the commercial bona fides, the arm's length nature of the transaction and the valuation of goodwill have all been made good in that the documents which have been put to me could reasonably give rise to the inferences which HMRC have made which, in turn, reasonably give rise to the concerns which form the basis of the demand for documents and information in the 2002 and 2003 notices. It is important to remember that this hearing is not to determine the substantive points as to liability in respect of particular assessments. Rather it is to determine whether HMRC is entitled to sight of documents or information relevant to the Appellant's corporation tax liability.
29. All of the documents put to me (in particular [but not only] the Statutory Accounts) give rise to a potential [reasonable] concern (I put it no higher than that) that the material transactions were between related parties within FA 2002, Schedule 29, paragraph 95, that the transactions might not have been at arm's length, that the transactions were tax motivated and the valuation of the trade and assets and/or the goodwill was manipulated for tax purposes. The question of whether the goodwill was an "existing asset" within Schedule 29, paragraph 118 is a mixed question of fact and law which is reasonable to raise in relation to transactions between [perhaps] related parties.
30. Of course, it may be that, were the matter to come to a substantive hearing, all of these concerns would be demonstrated to be ill-founded

Power and Possession

31. Quite simply, there has been no evidence presented to me or in the correspondence put to me that the items I confirm in either the 2002 and 2003 notices are outside the power or possession of the Appellant. Of course if the Appellant had presented evidence suggesting otherwise I would have considered it. Documents outside the power and possession are outside the lawful scope of both the 2002 and the 2003 notice in any event: FA 1998, Schedule 18, paragraph 27(1)(a).

Appellant's Grounds of Appeal

32. I should say something about the Appellant's four grounds of appeal, contained in the Appellant's letter of appeal dated 25th November 2004 and sent by Mr R. C. Thomas. Ground 1 is that "the enquiry is seriously prejudiced in that the Revenue has already determined that the price paid for the goodwill was significantly in excess of market value; the Revenue is unable to provide an adequate explanation for the basis of this conclusion or to specify what the market value was". Ground 2 is that "the Company has been unfairly treated in that the Revenue did not allow the Company any reasonable opportunity to provide the information voluntarily". Grounds 1 and 2 go to the conduct of the Inland Revenue, which is not a matter for the Special Commissioners. Rather, if these points were to be made good, it is a matter for judicial review. Ground 3 is that "information and documents have been demanded which are not relevant to the issue under enquiry". This is quite simply an assertion without foundation. No evidence has been led or is in the correspondence which makes good that assertion. Ground 4 is that "information and documents have been demanded which are subject to legal professional privilege". I accept Ground 4 to the extent that I have set aside the 2002 notice and the 2003 notice to the extent to which they request documents subject to privilege.

F Conclusion as to 2002 and 2003 notices

33. I therefore confirm the 2002 notice of enquiry (and dismiss the appeal) for Items 1, 2, 3, 4, 5, 6, 7, 9, 11, 12, 13 and 14 but subject to the following qualifications:-

(i) the scope of the documents and information required is confined to those documents and information within the power and possession of the Appellant;

(ii) the documents and information subject to legal and professional privilege [legal adviser - client privilege in Scotland] are outside the lawful scope of the 2002 notice of enquiry altogether.

I set aside the notice in respect of Item 8 and Item 10.

34. In respect of the 2003 notice of enquiry, I confirm the notice (and dismiss the appeal) in respect of Items 1, 2 and 5 but subject to the same qualifications, namely:-

(i) the Appellant is only required to produce such documents and information as are within its power and possession;

(ii) the documents and information subject to legal and professional privilege [legal adviser - client privilege in Scotland] are outside the lawful scope of the 2003 notice of enquiry altogether;

35. I set aside the notice (and allow the appeal) in respect of Items 3 and 4.
36. The appeal in respect of the 2002 notice and 2003 notice is allowed to the extent I indicated above. Otherwise the appeal in respect of both the 2002 and 2003 notices is dismissed.

G Jurisdiction

The Appellant's application and the decision in relation to the application

37. In relation to the Appellant's application to adjourn this appeal and either transfer jurisdiction to the Edinburgh North General Commissioners, or, alternatively, have the appeal heard by the Special Commissioners in Edinburgh, I reject that application. I consider that the hearing ought to be heard in London and should not be adjourned to be heard in Edinburgh. The application confuses the notion of jurisdiction with the location of a particular hearing.

The law as to jurisdiction and location

The Appellant's submissions

38. Mr R. C. Thomas wrote on behalf of the Appellant to the Clerk to the Special Commissioners on 9th February 2005 stating that it is "our intention to take advice in this regard [i.e. jurisdiction] and to prepare a submission in answer to the Revenue's submissions", the Revenue having claimed in correspondence that the Special Commissioners could hear the case in London.
39. Mr R. C. Thomas wrote again to the Clerk to the Special Commissioners on 10th May 2005 requesting that the appeal be heard by the Special Commissioners in Scotland. In that letter, Mr R. C. Thomas claimed that "if we are represented, we are advised that we would most likely require to instruct both English and Scottish counsel" and that "[in] order to allow us the opportunity of being represented at reasonable cost we respectfully request that the Commissioners arrange for this hearing to be held in Edinburgh." The letter stated that "[there] are specific points of Scots law that we may well wish to invoke in this case" and that "[there] is no dispute that the company is subject to Scots law. Every CT notice and letter has been sent to the company's registered office in Edinburgh." The Clerk to the Special Commissioners replied on 17th May 2005, informing the Appellant that its letter had been referred to the Special Commissioner and that "[the] Special Commissioner said that the appeal will be listed for hearing in London as your place of business is in England. There is no problem about introducing Scottish law in the hearing and it may be possible to have a Commissioner who is a Scottish lawyer."

The law

40. It is important to distinguish the question of jurisdiction from the question of the location of a particular hearing. The two questions are quite different. So far as jurisdiction is concerned, the jurisdiction of the Special Commissioners is a UK wide jurisdiction. The basis of jurisdiction is found in the Taxes Management Act 1970, ("TMA 1970") Sections 56B-56D. TMA 1970 is a statute of UK wide application. TMA 1970 does not segment the Special Commissioners' jurisdiction into separate jurisdictions for England, Scotland and Northern Ireland. Section 44(1) and Schedule 3 to the Taxes Management Act 1970 ("TMA 1970") provides "relevant place of business" rules in respect of General Commissioners' hearings in relation to corporation tax and an election procedure for both an appellant corporation taxpayer and HMRC (see paragraph 4) to select the location of an appeal from those places of business specified in paragraph 4(2). But there are no such rules for the Special Commissioners (see Section 46, which contains no provisions analogous to Section 44 or Schedule 3). In cases such as this the jurisdiction of the Special Commissioners is dependent on an election being made to transfer the hearing from the General Commissioners who are the body who would hear the appeal if no election is made (TMA 1970, Section 31B, Section 31D). Thus the jurisdiction of the Special Commissioners necessarily follows the jurisdiction of the General Commissioners who would have heard the appeal, absent an election to have it heard by the Special Commissioners. As to which superior court (the High Court in England, the Court of Session, sitting as the Court of Exchequer in Scotland) will have jurisdiction over an appeal from the Special Commissioners, this depends on whether the Special Commissioners have heard an appeal which would otherwise have been heard by the General Commissioners in England (in which case the appeal is to the High Court) or in Scotland (in which case the appeal is to the Court of Session). This is not to say that the provisions of TMA 1970, section 44(1), and Schedule 3 apply by analogy to Special Commissioners' hearings. They do not. Nothing in their terms suggest that they do. Rather the Special Commissioners' jurisdiction is seen to be a substitutionary jurisdiction, where the place in which the General Commissioners would have sat determines for any Special Commissioners' hearing the prima facie applicable private law [so that for a hearing which would have been heard by General Commissioners in Scotland under TMA 1970 Schedule 3, an appeal before the Special Commissioners is conducted on the basis that submissions on Scots law are made as legal submissions and submissions on English law are made as submissions of fact], the applicable law of evidence and the relevant rules of procedure.
41. Section 56A(10) provides that "[all] matters within the jurisdiction of the High Court under this section shall be assigned in Scotland to the Court of Session sitting as the Court of Exchequer". Section 56A(10) thus confers appellate jurisdiction from the UK Special Commissioners' Tribunal to the Court of Session "in Scotland" which I take to be an elliptical phrase meaning "cases where the General Commissioners would have heard the case in Scotland had there not been an election for the case to be heard by the Special Commissioners".
42. But the location of a Special Commissioners' hearing is certainly not governed by what the location of the General Commissioners' hearing would have been. No election procedure is specified in TMA 1970, Section 3, Section 46(1) which makes provision for the exercise of an election for an appeal to be heard before the Special Commissioners, in contrast to Schedule 3. Rather, the location of a hearing is a matter for the Special Commissioners: Special Commissioners (Jurisdiction and Procedure) Regulations 1994, SI 1994/1811 ("the 1994 Special Commissioners Regulations"), Regulation 17(2). Although FA 1998, Schedule 18, paragraph 28(3) requires this hearing to proceed in the same way as an appeal against an assessment, the rules of procedure contained in the 1994 Special Commissioners Regulations [including Regulation 17(2)] clearly apply rather than TMA 1970, Schedule 3. The location depends on the decision of the Special Commissioners acting judicially, who should bear in mind the law governing the proceedings, the court which has jurisdiction of an appeal from the Special Commissioners, the convenience of the parties and the presence or absence of some other good reason to have the Special Commissioners' hearing located in one place rather than another. This leaves unaffected the question of jurisdiction (and of course the question which superior court has jurisdiction). Of course, all parties must be dissuaded from "jurisdiction shopping" or suggesting a transfer of location of a hearing merely to postpone a substantive hearing.
43. This is clear from authority in Mimtec v IRC [2001] STC (SCD) 101 a dispute involving a Scottish taxpayer which was heard in London, Special Commissioner Stephen Oliver QC said that "although the hearing was in London, the appeal belongs in Scotland" ([2001] STC (SCD) 101 at 108, paragraph 20). Similarly, in Mars UK Ltd v Small (Inspector of Taxes); William Grant & Sons Distillers Ltd v IRC [2004] STC (SCD) 253, two appeals were heard together by the Special Commissioners in London, and were the subject of a single decision in favour of both taxpayers. HMRC's appeal in relation to Mars UK Ltd was heard in the High Court, whereas its appeal in relation to William Grant & Sons Ltd was heard in the Court of Session.

Reasons for the decision

44. So far as the question of location goes, I am persuaded that London was the appropriate location for this hearing, certainly in the absence of any intelligible submissions to the contrary by the Appellant. The Appellant is a company incorporated in Scotland with its registered office in Scotland. As such the Appellant is itself governed by Scots law. However HMRC contends the Appellant conducted most of its trade in England: its trading premises are at Springwoods, The Warren, Caversham, Reading RG4 7TQ. This is disputed by the Appellant in an email dated 24 May 2005 where it contends that it has no place of business in England. No evidence has been presented which suggests a place of business in Scotland. I make no finding on which contention is correct. However, it is clear that one director resides in Henley- on-Thames in England and the other in Guernsey. Neither director is resident in Scotland or, on the evidence put to me, has any other connection to Scotland. The Minute of Agreement states at clause 11 that it is governed by Scots law. An agreement ('the Tax Agreement') entered into between the Appellant, Mr R. C. Thomas, Mr S. J. Thomas, Thomas Lindh Limited (previously Spring Salmon Limited), the S&R Thomas Partnership and the Inland Revenue on 24th May 2004 in settlement of claims for tax by the Inland Revenue (excluding its claims for the years in issue in this case in relation to the Appellant) is most likely governed by English law, certainly on the evidence to hand, since the agreement was signed in Reading. There is no governing law clause. The Trust Deed establishing the Maclennan Trust on 27th August 1997 is governed by Guernsey law. So far, other than the place of incorporation of the Appellant and the governing clause of the Minute of Agreement, no other substantive matter (the place of trading of the Appellant, the residence of its directors) has been demonstrated to have any Scots connection. Neither do relevant questions of law suggest that Scotland is a more appropriate location than England for this hearing. The scope of Scots law relating to privilege is not in issue in this hearing since it is only whether the principle of privilege prevents HMRC from seeking documents or information at all which is in issue. Indeed no question of Scots private law arises in this hearing. It follows that I cannot see any reason why it is proper to grant the Appellant's application to adjourn this hearing to Scotland. I have had no reason put to me why it would be at all inconvenient for either director or their representatives to have attended a hearing in London (and more convenient for it to be held in Scotland for them). The Appellant has merely indicated in correspondence that it will instruct both Scots and English Counsel (see paragraph 39 above). Even if a relevant question of Scots law arises on which an appeal lies to the Court of Session, that is not a good reason to have the case adjourned in order that it be heard in Edinburgh when both directors are resident outside Scotland and no evidence has been presented as to why the Appellant or its representatives are inconvenienced by attending a hearing in London.
45. I find as a fact (by inference) that there would have been no inconvenience to the Appellant, or its directors, or its representatives in attending a hearing in London rather than Edinburgh. I have had no evidence put to me as to why the Appellant could not instruct appropriate advisers from either Scotland or England to attend this hearing. Certainly the Appellant has not discharged the onus of proof against him (TMA 1970, Section 50(6)).
46. As I am a dual-qualified Scots and English lawyer, and a practising member of both the Scots and English Bars, the Appellant could have made whatever submissions he wished on Scots private law. Again, I repeat that the Appellant has led no evidence in support of its application as to why its representatives could not have attended this hearing in London. I find as a fact that the Appellant was informed that there would be no difficulty in presenting submissions on Scots law in this hearing in London, given the communication from the Clerk to the Special Commissioners dated 17 May 2005 to which I refer in paragraph 39 above.
47. The Appellant is not prejudiced by my rejection of his application to have the hearing heard in Scotland. To the extent that documents are not in the Appellant's power or possession, or privileged, or the Appellant wishes to assert that the documents are not relevant to its tax affairs, the Appellant can lead evidence to that effect in any penalty proceedings. If the Appellant's submissions are upheld, there can be no penalty since the documents would be outside the scope of the notice of enquiry in any event. Indeed, if the Appellant wishes to do so, he may make a further application to have any penalty proceedings heard in Scotland (although any application must be supported by intelligible submissions of fact and law).
48. As noted above, on 24th May 2004 the Appellant, among others, entered into a Tax Agreement with the Revenue which recorded a final agreement between HMRC and the Appellant on certain of its tax affairs. However the Tax Agreement does not extend to the period ended 31st July 2002, or the period ended 31st July 2003. Furthermore Clause 2(d) of the Tax Agreement expressly reserves the Commissioners' position in relation to the "acquisition of the Partnership's business by the Scottish Company in the return period to 31 July 2002 and that the [tax agreement] is without prejudice to and does not limit any such enquiries". Although I understand from Mr Read that the Tax Agreement has been the subject of a dispute in relation to the S&R Thomas Partnership's tax affairs before the General Commissioners sitting in Reading on 20th June 2005, this is neither here nor there. The Tax Agreement clearly does not preclude the Commissioners from either making enquiries or serving notices of enquiry in relation to the Appellant for the periods ending 31st July 2002 and 31st July 2003.
49. These observations are quite separate to the question of which General Commissioners will have had jurisdiction over the substantive hearing and which superior court would have jurisdiction over any appeal in respect of that substantive hearing. That question must be answered (if necessary) in a separate application by either the Appellant or by HMRC.

H The non-attendance of the Appellant

The law

50. Regulation 16 of the Special Commissioners (Jurisdiction and Procedure) Regulations (SI 1994/1811) provides as follows:

"(1) If a party fails to attend or to be represented at a hearing of which he has been notified, the Tribunal may—

(a) unless it is satisfied that there is good and sufficient reason for such absence, hear and determine the proceedings in the absence of the party or his representative, or

(b) postpone or adjourn the hearing.

(2) Before deciding to hear and determine any proceedings in the absence of a party or his representative, the Tribunal shall consider any representations in writing or otherwise submitted by or on behalf of that party in response to the notice of hearing and shall give any party present at the hearing an opportunity to be heard in regard to those representations."

Decision to hear the appeal

51. I have decided to hear this case in the absence of the Appellant or any agents. I have done so, after considering various representations made by the Appellant to the Clerk to the Special Commissioners, on the basis that there is not a good and sufficient reason for their absence. I briefly recapitulate the correspondence on which this decision is based. 52. On 19th April 2005, Mr R. C. Thomas wrote on behalf of the Appellant to the Clerk to the Special Commissioners requesting that the appeal be heard in September. The reasons given for this were that Mr R. C. Thomas and his brother had "other appeals" pending determination before the General Commissioners, other than that relating to the S & R Thomas Partnership which was scheduled for 20 June 2005. Mr R. C. Thomas did not give any particulars as to these "other appeals". He mentioned an appeal from a jeopardy assessment made by Mr Read on the Appellant, but did not give any reasons as to why this appeal entailed the postponement of this hearing. There was no suggestion of any clash of dates, for example. Mr R. C. Thomas further claimed that "the company's appeals could have been dealt with expeditiously if the Revenue had not introduced their contentious and complex stance as regards jurisdiction. This is the issue that is causing such problems as regards preparation". The Clerk responded by a letter dated 27th April 2005, stating that the Special Commissioner considered that there would be enough time to prepare a case before June 2005, and that the case would be listed for a date in that month.
53. On 19th May 2005, the Clerk to the Special Commissioners wrote to Mr Read (and presumably also to the Appellant), informing them that "[the] Special Commissioners will hear the above appeal at this address on 21 July staring at 10:30 am." The letter also requested that both parties take the following steps "in good time":

"Both parties should clarify the issues of fact and law on which they cannot agree.

A full statement of facts which are not in dispute should be prepared and agreed, with sufficient copies for the hearing.

All documents or copies on which it is intended to rely should be shown to the other party, copies should be put into one bundle and paginated, with sufficient bundles for the hearing."

54. On 21st June 2005 Mr R. C. Thomas wrote a letter on behalf of the Appellant to the Clerk to the Special Commissioners dated. It reads:

"Appeals against Notices under para 27 Sch 18 FA 1998 – y/e 31/7/02 & 31/7/03

We write to advise that the Revenue has completed its enquiries in respect y/e 31/7/02 and 31/7/03. Accordingly we are withdrawing our appeals against the Notices under para 27 Sch 18 FA 1998."

55. A copy of this letter was sent to Mr Read of the Inland Revenue on the same day. The basis of Mr R. C. Thomas's view that the Revenue had completed its enquiries was that on the previous day (20 June 2005), during the General Commissioners' hearing relating to an appeal by the S & R Thomas Partnership, the Revenue had submitted a document "without prejudice" which computed the tax due if the goodwill had been valued at £0. The Revenue had also done a "without prejudice" computation on the basis that the goodwill was valued at £300,000, which it had sent the Appellant along with the £0 computation with a letter dated 25th January 2005. In that letter Mr Read said

"I have prepared the computations, for illustrative purposes only, on the basis of valuing the goodwill at £0 and at £300,000. Those values are not indicative of any particular view I have of the valuation of the goodwill. These figures are without prejudice to any future litigation."

56. Mr Read accordingly informed the Clerk to the Special Commissioners by a letter dated 22nd June 2005, that he had not completed his enquiries, nor had he issued closure notices under paragraph 32 of Schedule 18 FA 1998. The Clerk wrote to the Appellant on 11th July 2005 rejecting the Appellant's purported withdrawal of its appeal, for the reasons given by Mr Read.
57. On 13th July 2005 Mr S. J. Thomas, the brother of Mr R. C. Thomas, wrote an e-mail to Mr Read stating that

"Rod [Mr R. C. Thomas] is away on holiday and has just called to advise that he has received two emails from you. He will be back in the office Monday when he will contact you. He has said that the Company's position was made clear in his letter of 21st June. Your conclusions were made and the Company made amendments in accordance with those conclusions. Clearly any enquiry there may have been is closed."

58. Mr Read wrote back to the Appellant by a letter dated 14th July 2005 explaining again that the enquiries had not been closed, and asking the Appellant again whether it had withdrawn its appeal, as it had stated in its letter dated 21st June 2005. On 15th July 2005, in the light of unclarity as to whether the Appellant had withdrawn its appeal or not, the Clerk to the Special Commissioners asked the Appellant to submit an unequivocal statement withdrawing their appeal.
59. On 14th July 2005, Mr Read wrote to Mr R. C. Thomas thus: "We were asked by the Special Commissioners to prepare an agreed statement of facts and issues to be heard and also to prepare a joint bundle for the convenience of the hearing… So far I have heard nothing from you. I sent you my proposals on Tuesday [12th July 2005] for the agreed statement and I sent you my proposed list of documents for the bundle on Wednesday [13th July 2005]. If I hear nothing from you by 2.00 pm today, I will be sending the bundle to the Special Commissioners."
60. On 19th July the Appellant wrote to the Clerk to the Special Commissioners requesting that the Special Commissioners either "transfer jurisdiction in this matter to the General Commissioners in Edinburgh (which is our preference) or alternatively to arrange for a hearing of our case at a later date in Edinburgh by the Special Commissioners." No reasons were given for this application. The letter referred to parts of a letter written by Mr Read to the Clerk to the General Commissioners in Edinburgh North regarding an appeal of the Appellant there. In the passage of Mr Read's letter cited there Mr Read states that he does not object to that hearing being heard by the General Commissioners for Edinburgh North. Since Mr Read's letter related to another appeal of the Appellant, it has no relevance to the issue of whether this appeal should be heard in England or Scotland. Since the Appellant's primary application is that this appeal be heard by the General Commissioners in Scotland, the Appellant is effectively attempting to revoke its election, made in its appeal letter dated 25th November 2004, that the appeal be heard by the Special Commissioners (I have already observed that insofar as the subsidiary application to have the Special Commissioners' hearing adjourned and heard in Edinburgh is concerned, I reject that application for the reasons I give above). The only reason given for revoking this section 46(1) Taxes Management Act 1970 election is that Mr Read has agreed that another quite separate to this matter appeal by the Appellant be heard by the General Commissioners for Edinburgh North. This is not a good reason certainly in the light of the facts I have mentioned here and I reject it.
61. On 19 July 2005 at 15.58 Mr R. C. Thomas sent an email to the Clerk to the Special Commissioners stating that "[we] are not in a position to take legal advice in the short time now allowed to us or to prepare our case adequately." He also said that "I was under the impression that we had withdrawn our appeals and that that was the end of the matter", although he acknowledged that "I now know from you that that is not the case". Mr R. C. Thomas then re-iterated the points made in his letter of the same date.
62. In an earlier email sent at 15.11 on 19th July 2005 to Mr Read (copying in the Clerk to the Special Commissioner), Mr R. C. Thomas complained that the bundle of documents which Mr Read had promised to send Mr R. C. Thomas had still not arrived, accused Mr Read of "frustrating the transmission of important information to me", and asked how he was supposed to obtain legal advice with regard to the arguments contained in the Revenue's skeleton argument in such a short time frame.
63. In his reply email sent at 16.46 on 19th July 2005 Mr Read pointed out that he had sent the Revenue's bundle by special delivery and that it was recorded as having arrived at Mr R. C. Thomas' home address on Saturday morning [16th July 2005], Mr S. J. Thomas having advised that that would be the best place to send it, all other documents having been sent to the company's registered office in Edinburgh. Mr Read also said in that email that the Revenue's skeleton argument had been faxed to Mr R. C .Thomas that morning.
64. After a flurry of e-mails, Mr Read sent Mr R C Thomas an e-mail at 10.39 on the 20th July, referring to the Clerk's letter dated 19th May 2005 and requesting that "all documents or copies on which it is intended to rely should be shown to the other party". Mr Read said he had sent Mr R C Thomas a list of documents on which he relied on 13th July 2005 and sent a bundle on the 15th July 2005. He requested that Mr R. C. Thomas send his own skeleton argument as soon as possible. The Appellant did not at any time send the Revenue or the Clerk to the Special Commissioners any appeal documentation whatsoever.
65. I have already observed above that paragraph 28(3) of Schedule 18 FA 1998 provides that "[an] appeal under this paragraph [against a notice of enquiry] shall be heard and determined in the same way as an appeal against an assessment". The Appellant should have been able to prepare its case independently of the HMRC. It did not do so. The Appellant has failed to discharge the onus of proof set upon it under TMA 1970, Section 50(6).
66. In an email sent to the Clerk for the Special Commissioners on 20 July at 11:48 Mr R C Thomas stated that he would not be attending the hearing on the next day but requested that I consider their written submissions, which are as follows:

"(1) HMRC know full well that the company is not legally represented in this appeal. Under the circumstances it would have been fair and reasonable for them to have provided us with their skeleton argument and bundle of documents (which I still have not received) 'in good time' (as they say themselves) so as to allow me time to formulate my arguments in response and take legal advice. I have not been given anything like sufficient time to address the complex range of issues canvassed in their lengthy skeletal [sic] argument;

(2) Following my letter to you dated 21 June 2005, I had assumed that the appeal was not going to proceed and as you know I did not see your letter of 11 July until Monday this week. The company indicated its change of address details some time ago which is evidenced by the address details on the letters sent to you over the last few months;

(3) The company was formed and constituted under Scots Law and its registered office is in Edinburgh. It has no place of business in England. Every item of correspondence issued by HMRC over the past year or more, every notice or tax demand, has been sent to the company's office in Edinburgh. The company's appeals against HMRC's jeopardy amendments are before the General Commissioners in Edinburgh as are its applications for closure notice directions. Any appeal against a Commissioner's determination would lie with the Court of Session in Edinburgh. Moreover HMRC made plain in their letter to the Edinburgh Clerk dated 22/6/05 (a copy of which I faxed to you yesterday) that they had no objection to the company's appeals being heard in Edinburgh.

This is a Scottish case which in our view should be heard and determined in Edinburgh. We respectfully invite the Special Commissioners to transfer jurisdiction in respect of this appeal to the General Commissioners for Edinburgh North or, alternatively, to arrange for a hearing of the appeal before the Special Commissioners in Edinburgh."

67. With regard to (1), it is no excuse for non-attendance that HMRC only served its documents until just before the hearing, in the context of an appeal against a notice of enquiry seeking documents and information in which the Appellant has not served any documents at all, nor made any intelligible legal submissions at all.
68. With regard to (2), any assumption by the Appellant that the appeal would not proceed (and any inference that HMRC had decided to conclude its enquiry) is entirely without foundation, without any evidence put to me in support of these assertions.
69. With regard to (3), the Appellant's arguments on location are also entirely without foundation for the reasons given above. The Appellant was informed on 17th May 2005 by the Clerk to the Special Commissioners of the decision to have the case heard by a Special Commissioner qualified in Scots law. No specific points of Scots law arise in any event. The wholly misguided dispute on the jurisdiction (as opposed to location) issue does not provide a good reason for non-attendance.
70. I conclude that the Appellant did not have a good reason for non-attendance at the hearing. I allowed the hearing to proceed. As I make clear above, the Appellant is free to resist any penalty proceedings in relation to the documents/information sought in the 2002 and 2003 notices (to the extent I confirm them) by making good submissions as to the relevance of documents or information sought, or that the documents/information are outside its power and possession.

The Appellant, had it attended the hearing through representatives, could have made submissions as to why it was proper to grant an adjournment. The Appellant has done a disservice to any case it may have had as to the scope of either the 2002 or the 2003 notice, the location of the hearing and any possible adjournment by failing to attend to make its case.

J GHOSH

SPECIAL COMMISSIONER

03 October 2005

SC 3156/2004