Tax Tribunal Upholds Use of Search Terms in HMRC Information Notice, Emphasizing Importance of Relevance and Specificity

Citation: [2023] UKFTT 971 (TC)
Judgment on

Introduction

In the case of Parker Hannifin (GB) Limited v The Commissioners for HMRC, the First-tier Tribunal (Tax Chamber) was presented with the issue of whether a Schedule 36 information notice, requiring the appellant to carry out email searches using specific terms was valid, and if the documents produced from such a search were “reasonably required”. This analysis delves into the legal principles the Tribunal applied when addressing the validity of the notice and whether it constituted an impermissible “fishing expedition”.

Key Facts

Parker Hannifin (GB) Limited (the Appellant) underwent scrutiny by HMRC for the tax relief claimed on interest paid on a £238m Eurobond. HMRC issued a Schedule 36 notice requiring the Appellant to produce emails using specific search terms that were suspected to yield information about “unallowable purpose” under sections 441 and 442 of the Corporation Tax Act 2009 and potential transfer pricing issues.

Upon completion of the search by PricewaterhouseCoopers (PwC), it was determined that many of the retrieved documents were not relevant. The Appellant provided HMRC with 1,695 emails considered relevant and appealed the notice, arguing the invalidity of the notice due to its non-specification of the documents and the inclusion of irrelevant documents that were not “reasonably required”.

The case’s decision hinged on interpreting the statutory conditions under Schedule 36 of the Finance Act 2008, particularly around what constitutes “reasonably required” documents and the use of search terms as descriptors in an information notice.

  1. Use of Search Terms as Descriptors: The Tribunal cited Ulster Bank ([1997] STC 832), where the court recognized a notice could seek “classes or categories of documents… even if conjectural” and found that the use of search terms lawfully described the documents because they set out the characteristics required.

  2. Reasonably Required Documents: Drawing from Derrin Brother Properties Ltd ([2014] STC 2238) and Kotton ([2019] EWHC 1327), the Tribunal highlighted that an information notice cannot be justified for a fishing expedition and should have a rational connection to the tax liability inquiry. It further emphasized that the Tribunal must base its decision on circumstances at the time of the hearing, not when the notice was issued, as pointed out in Hargreaves & others ([2021] UKFTT 80 (TC)) and Hackmey ([2022] UKFTT 160 (TC)).

  3. Variation of Notice: The Tribunal concluded that the notice could be varied in accordance with the evidence presented; it did not need to be set aside altogether as sufficient relevant documents had been produced from the search terms, following the PwC exercise.

  4. Privileged Information: Schedule 36 explicitly excludes requirement to provide “privileged information”, which Parker Hannifin had initially waived for the purpose of transparency.

Outcomes

The Tribunal found the notice to be valid in its use of search terms to describe required documents but far too broad, resulting in many irrelevant documents being included. The Tribunal accepted PwC’s exercise in identifying relevant documents and varied the notice to exclude those deemed irrelevant by PwC. The appellant was found to have already complied with the notice as varied, meaning no further action was required.

Conclusion

The Parker Hannifin case provides insight into the importance of specificity and relevance in HMRC’s information requests. The Tribunal adopted the established legal principle of “reasonably required” as it relates to an ongoing inquiry into the taxpayer’s liability, reinforcing the legitimate bounds of HMRC’s investigatory powers. While supporting HMRC’s right to use search terms, it emphasized that the terms used must yield documents that have a rational connection to the investigation and are not part of a fishing expedition. The case affirms the need for balance between HMRC’s informational needs and the taxpayer’s rights, including the protection of privileged information.