Often, there is a misconception that when you leave a jurisdiction, all tax liabilities in that jurisdiction are extinguished. In particular, where the rules around domicile and residence in the UK are in the spotlight more than ever and seemingly in a state of flux, it can be difficult to know what the liability could be, and where it might be due.
Whether you are moving to or from a jurisdiction, you need to carefully consider your tax affairs in both the country you are leaving, and the country you are moving to. If the tax authority in either jurisdiction comes knocking, it is important to understand the scope of their powers and what they may be looking for, and from where.
Historically, tax authorities may have looked at the filed tax returns to piece together a tax payer’s position and then asked questions where there is any uncertainty. Now, tax authorities make use of open-source materials, and related data.
This was recently highlighted when the French authorities launched an investigation into ex-Arsenal and Manchester City player, Samir Nasri. It is reported that Nasri may owe more than €5.5m in tax where his residency in France was being questioned. It has been reported that Nasri, told the French authorities that he was based in Dubai but the French authorities looked at all of his affairs, including where his Deliveroo takeaway meals were being delivered, to build a case that he was in fact based in France.
We have also seen situations recently where, following the introduction of the Common Reporting Standards (an international information standard for the automatic exchange of financial account information), tax authorities across the world are sharing information with one another. For example, the French tax authorities may share information with HMRC, and HMRC with the French authorities. This can result in a ‘nudge letter’ where HMRC has received information that suggests that there may have been an underpayment of tax in the UK. Even if further enquiries do not result in an additional tax liability, these enquiries can run for many months, if not years, if not handled properly from the outset.
As shown in the Nasri case, tax authorities may look at a variety of sources to understand someone’s tax position. We have seen HMRC looking at information that is publicly available
(for example, the Land Registry, DVLA and Companies House, or overseas equivalents) but also, HMRC have been more ‘creative’ and looked at social media, bank statements to understand patterns of behaviour (for example, if a taxpayer has regular transaction in a shop in the South of France over a number of months, HMRC may ask for more information).
Given increasing collaboration across tax authorities, it is more important than ever that your advisers are working together from the outset to best understand how to position your affairs with each local authority, and where necessary – make a voluntary disclosure. In circumstances where the French authority may be privy to what the UK authorities know (and vice versa), it is important that you are not only transparent with your advisers but also, understand the implications of each jurisdiction’s affairs on the other and what information the authorities can reasonably ask for. Further, in circumstances where tax authorities may ask for advise that you have received from your UK advisers, having the benefit of legal advice privilege can also be helpful as this could mean that the tax authority is not entitled to the correspondence that you had with your lawyer when entering into an arrangement or the guidance that you have received around an enquiry itself.
We therefore recommend engaging with specialists as soon as you become aware that any tax authority is making enquiries into your affairs to better understand the implications that this may have on your UK affairs. For the reasons outlined above, in particular the benefits of privilege, it may be that you decide that your day-to-day tax adviser or accountant may not be best placed to respond to HMRC. Rather, it may be that you look to engage a legal adviser to work with you and your accountant / tax adviser to resolve any enquiries that may come through.
