Administrative Court rejects taxpayers’ challenges to withdrawal of Liechtenstein Disclosure Facility

A group of nine taxpayer companies who had used tax-driven employee benefit trust (EBT) arrangements failed in challenges to withdrawal by HM Revenue & Customs of some of the most advantageous terms of the Liechtenstein Disclosure Facility (LDF). The case strikingly demonstrates that HMRC may change its mind on the treatment of taxpayers so long as it has good reason, protects the interests of those to whom it has given a formal commitment, and explains its thinking when challenged.


Over a prolonged period from 2011 to 2013 taxpayer companies engaged in correspondence with HMRC concerning use of the LDF to settle disputed tax liabilities arising out of EBTs. The LDF had originally been designed to bring into UK tax taxpayers with assets concealed in Liechtenstein whose true tax affairs were undisclosed. It became more widely used as a means of regularising UK tax liabilities for those with assets held offshore (and not just in Liechtenstein), and who might not have any disclosures to make.

The litigation

In circumstances discussed at length in the judgment, the Commissioners of HMRC took the view in July 2013 that use of the LDF for these purposes should cease. A fourth Joint Declaration was negotiated with the government of Liechtenstein and, on 14 August 2014 access to certain favourable terms of the LDF was withdrawn for those, such as the claimants, who had used EBT arrangements which had given rise to tax liabilities which were disputed within the UK. Those who had already registered for the LDF were allowed to keep the benefit of the arrangements.

None of the claimants had registered for the LDF before the date of withdrawal, but they tried to do so afterwards. They claimed that HMRC’s refusal to permit this was conspicuously unfair. In R (City Shoes Wholesale Ltd) v Commissioners for HM Revenue & Customs [2016] EWHC 107 (Admin), Whipple J rejected their claims for judicial review.

The claimants had no legitimate expectation (as they had conceded) that they would be permitted to enjoy LDF terms. The judge held that, in those circumstances, there was nothing conspicuously unfair about the decision in any of the four ways in which it was criticised by the claimants.

Relevant matters included:

  • the tax yield implications of permitting the EBT users to settle by means of the LDF
  • the interests of taxpayers generally
  • the purpose of the LDF, which was to enable HMRC to reach settlements and realise tax from taxpayers whose liabilities had previously been unknown, whereas here HMRC were already well aware of the disputed EBT liabilities of the claimants
  • possible reputational damage to HMRC, and the possibility of legal action, if HMRC permitted the LDF to be used for EBT settlements
  • HMRC’s litigation and settlement strategy
  • the comparatively less advantageous terms of the EBT Settlement Opportunity, through which many EBT users had already settled
  • the non-availability of the LDF to those EBT users who did not have any foreign assets at the relevant date.

These were powerful factors in favour of limiting the LDF benefits available to the claimants and other unregistered EBT users.

All the relevant considerations had been taken into account and explained.  There was no abuse of power or error of law. The claims were dismissed.

Timothy Brennan QC and Akash Nawbatt (a member of the Attorney-General’s “A” Panel of Counsel to the Crown) appeared for HM Commissioners of Revenue & Customs. For a full copy of the judgment, please click here.

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