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Diverted profits tax and the Glencore case

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The first published court decision on the diverted profits tax was released at the end of June (Glencore Energy UK v HMRC [2017] EWHC 1476 (Admin), reported in Tax Journal 14 July 2017). It’s a procedural decision in a case brought by Glencore.  
The case has excited some public lawyers (perhaps with good reason). But this piece is just about the court’s reaction to Glencore’s concerns: the same concerns that many other taxpayers have raised. The reaction looks clear: to challenge a charging notice, in almost every case you will have to follow the FA 2015 process.
When Glencore received a charging notice for 2015, it tried a different approach. It saw serious errors in the transfer pricing methodology. It thought HMRC hadn’t applied the right legal tests. It was concerned that the notice didn’t take into account its representations. And it didn’t want to wait for the end of the review period to launch a legal challenge. So it challenged the charging notice using judicial review (a legal remedy most taxpayers know best in relation to legitimate expectation claims).  
It’s also the case that if HMRC’s charging notice had been invalid, HMRC could have been out of time altogether to issue a valid one to Glencore. That would have meant no DPT charge at all for 2015, on procedural grounds.  
A High Court judge refused Glencore the right to bring the challenge. It’s worth noting that this judge – very unusually – has real transfer pricing experience. He focused on his view of the substance of Glencore’s complaint. Four of his reasons stand out.
  1. He thought none of Glencore’s arguments was a ‘show-stopper’ for the DPT charge. That meant that even if Glencore won the judicial review, he thought that there would still be a need for detailed engagement with HMRC.  
  2. He recognised that there might well be errors in the methodology of the charging notices. But he said that did not matter. It was just part of the DPT approach of ‘pay now, negotiate later’, which gave HMRC significant latitude in its approach to charging notices.
  3. He thought that the FA 2015 review process (which he called an informal dispute resolution mechanism), followed by a statutory appeal, was an appropriate means of solving disputes. He stressed that the review was required to consider whether there was any DPT liability at all.  
  4. And he thought that, here, the tax-technical issues were so technical, and there was sufficient evidence to work through, that the substantive arguments were best resolved in the statutory process.
It’s clear that Glencore has given serious thought to appealing against this decision. But for many other taxpayers, the court’s reaction will send a clear message. HMRC had encouraged Glencore to ‘make the best use of the time we have available in the review period’. Given the now well-known ‘cliff-edges’ at the end of the review period, that seems a very sensible approach. 
Issue: 1364
Categories: In brief