Refinitiv UK Holdings Limited (Refinitiv) and Thomson Reuters Group Limited (TR) brought a joint application pursuant to Regulation 5(5) of the Information Notice: Resolution of Disputes as to Privileged Communications Regulations 2009. The application asked the First-Tier Tribunal (Tax Chamber) to consider and resolve a dispute between the applicants and HMRC as to whether certain documents requested in information notices issued by HMRC under paragraph 35 of Schedule 36 to the Finance Act 2008 on 25 March 2022 (the Schedule 36 Notices) were subject to legal professional privilege.

In this article, Alex Lerner, Krishna Mahajan and Francesca Bugg review the recent decision in Refinitiv UK Holdings Ltd and Another v HMRC [2023] UKFTT 222 (TC), in which the tribunal held that legal advice privilege (but not litigation privilege) applied to documents primarily concerned with the implementation of an alternative corporate structure.

Factual background

HMRC issued the Schedule 36 Notices as part of its enquiries into the applicability of the Diverted Profits Tax (DPT) provisions in Part 3 of the Finance Act 2015 to arrangements between certain subsidiaries of Refinitiv and certain subsidiaries of TR (the TRUK entities) for the accounting periods ending 31 December 2016, 31 December 2017 and 31 December 2018. During that time, Refinitiv had been part of TR. The arrangements included the transfer of trademarks and other intellectual property from TRUK entities to the Swiss principal entity, Thomson Reuters Global Resources Unlimited Company (TRGR), from 2008 onwards.

In October 2013, TR’s Chief Executive Officer announced that it would begin a process to help it shift from a “portfolio of businesses” to a true “enterprise”. A chief transformation officer was appointed to lead the project, transforming the group into an enterprise operating model (EOM).

At the same time as the EOM project was being undertaken, the Organisation for Economic Cooperation and Development (OECD) had begun to consider new proposed guidelines around base erosion and profit shifting (BEPS) and the need to align profits with value-creating activities.

Having been apprised of these developments, the CEO of TR considered that the ongoing transition to EOM provided an opportunity to ensure that TR’s transfer pricing was fully aligned with how the business operated and was consistent with the emerging thinking from the OECD. It therefore undertook a project from late 2014 to ensure tax was adequately considered as part of the overall EOM transition. This tax-focused sub-project was referred to as ‘Project Vista’.

Before and during the project to transition to the EOM, TR was engaged in tax disputes in various jurisdictions around the world related to transfer pricing. This included substantive litigation in the US Tax Court. Because of this existing and anticipated litigation in the US and other jurisdictions and the consideration by the OECD BEPS project of new guidelines to align profit and value-creating activities, TR engaged advisers to ensure that it was properly prepared for litigation regarding its ongoing transfer pricing. Specifically, Deloitte Consulting advised on designing a revised global operating model, Ernst & Young advised in relation to transfer pricing and Covington & Burling LLP, a law firm, provided tax advice and support to TR’s general counsel, which in turn provided legal advice on the group’s structure.

As part of its enquiries, HMRC requested (a) all contemporaneous documents relating to Project Vista and (b) any contemporaneous advice documents received from EY or any other advisors consulted on the tax impacts/implications of Project Vista.

TR claimed legal professional privilege over certain of the documents requested by HMRC. TR therefore provided only a list of such documents, describing their nature and contents, but did not provide the documents themselves (the Disputed Documents).

HMRC notified the applicants that their list of documents provided insufficient information for HMRC to agree that the Disputed Documents were subject to legal professional privilege.

Decision

The Disputed Documents related specifically to the design phase of Project Vista.

The applicants asserted that the Disputed Documents were subject to litigation privilege or, alternatively, legal advice privilege.

In assessing the applicants’ claim to litigation privilege, the tribunal followed the approach of Lord Justice Nugee in The Financial Reporting Council Ltd v Frasers Group Plc (formerly Sports Direct International Plc) [2020] EWHC 2607 (Ch). In that case, Lord Justice Nugee considered whether reports in relation to the implementation of a new corporate structure were written for the sole or dominant purpose of litigation. In doing so, he assumed that litigation challenging the effectiveness of the corporate structure was in reasonable contemplation at the time the reports were written. However, his answer, at [36], was:

“… obviously ‘No’. A taxpayer who takes advice as to how to structure his affairs does not do so for litigation purposes. He does so because he wants to achieve a particular result for tax purposes … Even if it is contemplated that the particular structure will be likely to be attacked by the relevant tax authorities and that there will be litigation, the advice as to how to implement the new structure – or, if this is preferred, how to revise or enhance an existing structure – is not primarily advice as to the conduct of the future possible litigation.”

The tribunal therefore concluded that litigation privilege could not apply to the Disputed Documents because they were primarily concerned with the implementation of an alternative structure.

In assessing the applicants’ claim to legal advice privilege, it applied the test in R (Jet2.com Ltd) v Civil Aviation Authority [2020] QB 1027 at [96]. Under this test, legal advice privilege applies to confidential communications between a client and their lawyer for the dominant purpose of giving or receiving legal advice together with secondary evidence of the content of such communications and documents that betray the trend of the advice.

The tribunal also had regard to:

• Balabel v Air India [1988] Ch 317, which provides that privilege may also attach to documents sent as part of a “continuum of communications” between a lawyer and client aimed at keeping both informed so that advice may be sought and given as required, and
• the approach of Lord Scott at [38] in Three Rivers District Council v Governor of the Bank of England (6) [2005] 1 AC 610, where he said:

“If a solicitor becomes the client’s ‘man of business’, and some solicitors do, responsible for advising the client on all matters of business, including investment policy, finance policy and other business matters, the advice may lack a relevant legal context. There is, in my opinion, no way of avoiding difficulty in deciding in marginal cases whether the seeking of advice from or the giving of advice by lawyers does or does not take place in a relevant legal context so as to attract legal advice privilege. In cases of doubt the judge called upon to make the decision should ask whether the advice relates to the rights, liabilities, obligations or remedies of the client either under private law or under public law. If it does not, then, in my opinion, legal advice privilege would not apply. If it does so relate then, in my opinion, the judge should ask himself whether the communication falls within the policy underlying the justification for legal advice privilege in our law. Is the occasion on which the communication takes place and is the purpose for which it takes place such as to make it reasonable to expect the privilege to apply? The criterion must, in my opinion, be an objective one.”

The tribunal concluded that, on balance, it was satisfied that the Disputed Documents represented communications that were part of the continuum of communications with a dominant purpose of providing legal advice by TR Legal to TR’s senior decision makers. The tribunal therefore upheld the applicants’ claim to legal advice privilege.

Comment

The application was decided on the papers, and so may not have been fully argued on all points. Subject to that caveat, however, the tribunal’s decision provides helpful confirmation of its approach to claims of legal professional privilege in the context of tax-focused, multi-jurisdictional corporate structuring projects.

Although TR had engaged advisers to ensure that it was properly prepared for litigation regarding its ongoing transfer pricing project, its contemplation of a potential future challenge was insufficient to ground a claim to litigation privilege because the advice it sought was deemed to have been taken for the purposes of structuring its affairs. Although not spelt out in the judgment, among other things, the applicants failed to show that the Disputed Documents were communications made for the sole or dominant purpose of conducting litigation.

Nevertheless, the applicants’ claim to legal advice privilege was upheld, notwithstanding that there were multiple advisors (including non-lawyers) advising in circumstances where a claim to legal advice privilege might otherwise have been thought difficult to uphold.

This shows that corporates embarking on major structuring projects should, at the outset, give careful thought to arranging their communications such as to preserve legal advice privilege, even if litigation or some other challenge from HMRC challenging the effectiveness of the structure is in reasonable contemplation.

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