Neither the use of offshore jurisdictions as a way of mitigating UK tax, nor, unfortunately, the attractiveness of such jurisdictions, by reason of these countries' independence and general culture of secrecy, particularly banking secrecy, to tax evaders and other criminals are recent phenomena.

Recently, the international focus, by entities such as the Organisation for Economic Cooperation and Development (OECD) and the European Union (EU), has largely been on the issue of secrecy.

These bodies argue that a culture of secrecy impedes tax authorities' ability to collect the 'right amount of tax' and enables money derived from tax evasion to be sheltered from recovery.

However, they do accept (albeit in some cases reluctantly) that there is a place for nil-tax jurisdictions, and offshore tax planning in the world.

There have been a number of legislative developments, particularly the EU Savings Directive, which suggest that the provision of information from many offshore jurisdictions may soon become routine.

However, in the UK, the Offshore Fraud Project Group (OFPG) (which has calculated that about £250bn has been derived from tax evasion or 'unacceptable avoidance' committed in the UK and has been invested in 'tax haven' locations) of HM Revenue and Customs (HMRC) has recognised that it already possesses a powerful weapon that it can use to gather offshore information – s20(8A) of the Taxes Management Act 1970 (TMA).

Section 20(8A) enables HMRC to obtain information from third parties without naming the taxpayers to whom the notice relates.

The power was introduced primarily for the purpose of enabling the Inland Revenue to obtain information from sponsors of tax avoidance schemes with regard to their clients.

Until recently, this power was used only rarely, and almost never for that purpose.

Recently, however, it has started to be used by the OFPG to obtain, for example, records relating to credit cards funded from offshore bank accounts held by UK resident and UK domiciled taxpayers.

One of the restrictions on the ability of HMRC to obtain documents by service of a s20(8A) notice is that this power is circumscribed by the stipulation that only documents which are in the 'possession or power' of the particular person need be delivered. Intuitively, that appears uncontroversial.

However, the terms are not defined in the taxing statutes; and there is little relevant case law.

In the first part of the article, an analysis of the terms is provided; and, in the second part, some examples of when documents would, or would not, have to be disclosed are set out.

Possession

The term 'possession' has a number of different meanings.

The most relevant here is the phrase that formerly appeared in the Rules of the Supreme Court (RSC) in relation to discovery: "possession, custody or power". In B v B [1978], Dunn J said, in relation to discovery, that: "'possession' means, the right to the possession of a document… 'power' means an enforceable right to inspect the document or to obtain possession or control of the document from the person who ordinarily has it in fact."

If a document has been entrusted to an individual who is acting as the owner's agent, and is physically held by that individual subject to an obligation of confidentiality to the owner, then a question arises as to whether the agent can argue that the document is not in his possession because although he has physical possession of the document, he does not have an unfettered right to possession of the document.

It is my view that if the duty is one of confidentiality, then the document will have to be disclosed on service of a valid information notice by HMRC, because the information notice will override the obligation of confidentiality.

This has been recognised in a banking law context, albeit in a different context.

In Tournier v National Provincial and Union Bank of England [1924], the Court of Appeal noted that there is a duty on banks to preserve secrecy that exists, unless and until one or more of the four exceptional circumstances that were identified in the case apply.

The first of the exceptional circumstances is having to give the information by law; and it will apply to a bank that is served with a valid information notice under s20(8A).

Thus, a document that is physically held by a bank in the UK, subject to an obligation of confidentiality to the owner, would be in the bank's possession for such purposes.

The meaning of power

As with the term possession, guidance on the meaning of power can be found from the consideration of the term in the context of the disclosure rules.

In Lonhro Limited v Shell Petroleum [1980], the claimants sought dis-closure of documents held by foreign subsidiaries of Shell.

The claimants argued that, even though the subsidiaries had refused to supply the documents further to a request from Shell, the documents were in the 'power' of Shell.

Shell owned 100% of the shares of the subsidiary companies; and so it could remove the directors or change the articles so as to require disclosure of the documents.

This argument was rejected by the House of Lords; Lord Diplock saying that the term 'power' means "a presently enforceable legal right to obtain from whoever actually holds the document inspection of it without the need to obtain the consent of anyone else".

The decision of the House of Lords in Lonhro was considered recently in the context of the information powers of HMRC in Meditor Capital Management v Feighan [2004].

Meditor concerned documents that were held by Meditor (Bermuda) (M(B)) in Bermuda and sought by the Inland Revenue by service of a notice on Meditor, a UK resident 100% subsidiary of M(B).

Meditor adduced evidence of correspondence between itself and M(B), which showed that it had asked M(B) to supply to it the documents requested by the Revenue and that M(B) had refused to do so.

The special commissioner held that the burden of proof was on Meditor to show that the documents were not in their power or possession.

In the context of Meditor having provided other information that had been held on an identical basis to the particular information that it claimed was not in its power or possession, these letters were not sufficient proof of that.

The special commissioner hinted also that the Lonhro test may not be the correct test to apply for these purposes – simply a de facto ability to obtain the documents or particulars might suffice.

Examples of documents sought by HMRC: It is assumed, for the purposes of these examples, first, that only one copy of the particular document exists and, secondly, that the information is sought by HMRC from XYZ plc, a UK resident company.

A document is held by an agent of a XYZ plc: Whether this is in the possession or power of XYZ plc will depend on the nature of the agency.

If the agent is an employee of a company, and the document was created during the course of his employment, the document will belong to the company and so will be in its power.

If the agent is a professional adviser, and the document is a working paper of the adviser, then it will be the property of the adviser.

Whether or not it is in the power of the company will depend on the agent and the terms of his retainer.

A document is held offshore by a non-UK resident 100% subsidiary company of XYZ plc: This will not be in the power, or possession, of XYZ plc, provided that the non-UK resident company is a separate legal entity

and it can not be said that it is so subservient to the wishes of XYZ plc that, with regard to requests from XYZ plc, compliance will always be guaranteed.

A document is held offshore by the non-UK resident parent company of XYZ plc: This will not be in the power or possession of XYZ plc.

However, XYZ plc must demonstrate that it does not possess an ability to obtain the document (cf Meditor).

An employee of XYZ plc is able to access electronically in the UK a document that belongs to the company's non-UK resident parent company: This will be in the possession of the employee.

It will be deemed to be in the possession of XYZ plc through the action of its employee.

However, whether this deemed de facto possession would extend to a circumstance where the document was obtained either in breach of internal guidance or through an unlawful means is a question that, I consider, has not been addressed in this context.

If the employee is not acting in his capacity as employee, but is off on a whim of his own, the document is unlikely to be deemed to be in the possession of the company.

Hartley Foster is head of tax litigation at DLA Piper Rudnick Gray Cary in the UK.