U.K. Tax Authority Opens Internal Inquiry Over Leaked Emails

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By Ben Stupples

The U.K.’s tax authority has begun an inquiry into how private emails with the French government became public—part of its response to claims it mishandled a tax probe into Lycamobile UK Ltd.

“A leak inquiry is underway,” Jon Thompson, chief executive of Her Majesty’s Revenue and Customs, said in comments published April 30. “HMRC takes confidentiality and security of its data extremely seriously.”

Some U.K. lawmakers have questioned the tax authority’s political objectivity following a BuzzFeed News report alleging that HMRC refused to search the offices of London-based telecommunications businesses Lycamobile as part of a French fraud probe. Leaked emails, written by British officials, noted that Lycamobile is the U.K. Conservative Party’s biggest corporate donor, according to the report.

Lycamobile denies all claims in BuzzFeed News’s reporting.

Lawmaker Concern

Thompson disclosed HMRC’s leak inquiry in an April 27 letter to Nicky Morgan, chair of the U.K. Treasury select committee, who had raised concern about the tax authority’s behavior in the probe.

In her letter, dated April 23, Morgan questioned HMRC’s willingness to act on behalf of other countries. The claims about HMRC refusing to assist France’s tax authority are “extremely troubling,” she said.

Rebutting Morgan’s concerns, Thompson said HMRC doesn’t consider political connections or donations in tax investigations, and he stressed that the U.K. tax authority is committed to helping its counterparts overseas. “It is clear that HMRC made a concerted effort to assist the French to succeed with their request,” he said.

HMRC shouldn’t have included information about Lycamobile’s Conservative Party donations, he added.

“It was a mistake to include the background information in the email, as it created an opportunity for others to misconstrue the reasons and motivations for our decision” not to search Lycamobile’s offices, he said.

Legal Requirements

Led by Morgan, the Treasury select committee is a panel of U.K. lawmakers appointed to scrutinize the work of the Treasury and HMRC.

In the Lycamobile investigation, HMRC told the French authorities their request fell short of U.K. legal requirements.

Once HMRC rejected the request to raid Lycamobile’s offices, it kept working with French officials to explain the requirements and offered to meet a French judge to explain them, a spokesman told Bloomberg Tax April 25.

HMRC declined to search Lycamobile’s offices “entirely on the grounds there was insufficient information provided to meet the statutory criteria for a U.K. search warrant,” Thompson said in his letter to Morgan.

An internal investigation from an HMRC lawyer has found no evidence that the extra information on Lycamobile influenced the U.K. tax authority’s decision-making over the French officials’ request, he added.

Lycamobile is the world’s largest provider of low-cost international calls, according to its website.

The company last donated to the Conservative Party in 2016. That year, it donated 50,000 pounds ($68,728), according Lycamobile U.K.’s latest annual accounts.

U.K.’s EU Assistance

The claims that HMRC didn’t help the French authorities come as it recoups more tax via European Union members under the trading bloc’s Mutual Assistance in the Recovery of Debt scheme.

The U.K. government obtained 5.4 million pounds in 2017 by asking other EU countries to recover unpaid tax debts on Britain’s behalf, a 177 percent increase from the previous year, according to official data.

Bloomberg Tax obtained the statistics through a Freedom of Information Act request to HMRC.

At the same time, however, HMRC has a history of collaborating with foreign tax authorities.

In March 2017, HMRC worked with the French, German, Dutch, and Australian tax authorities as part of an international investigation into Credit Suisse Group AG’s private bank. In addition, the U.K. is participating in the OECD’s global data sharing initiative to combat tax evasion.

‘Error of Judgment’

Thompson addressed the Lycamobile investigation in his April 30 appearance before lawmakers on the U.K.’s Public Accounts Committee to review HMRC’s performance.

The information on the company is “just two sentences of a three-page response” to the French authorities, he said. “But those two sentences are indeed an error of judgment.”

Separately, while Thompson’s defends his organization’s behavior in fighting tax fraud, HMRC’s efforts in recent year to fight abusive tax planning are yielding results.

A total of 330 businesses used corporate tax avoidance schemes in the financial year ended March 2017, a 42 drop from the previous 12 months, according to research published April 30 by accounting firm UHY Hacker Young.

Clive Gawthorpe, a UHY Hacker Young partner, said the data shows that HMRC has “won the war on aggressive tax planning by businesses.”

To contact the reporter on this story: Ben Stupples in London at bstupples@bloombergtax.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bloombergtax.com

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