Fraud & Asset Tracing Against HMRC

• Published date: 08 March 2021
• Subject Matter: Tax, Criminal Law, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Income Tax, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Quadrant Chambers
• Author: Mr Joseph England

OVERVIEW

XL Insurance Company SE v (1) IPORS Underwriting Limited; (2) Paul Alan Corcoran; (3) Cheshire Prestigious Cars Limited And (4) Her Majesty's Revenue and Customs [2021] EWHC 474 (Comm)

self

Al Capone once said: "The income tax law is a lot of bunk. The government can't collect legal taxes from illegal money." Al Capone, of course, had no intention of paying legal taxes. But what would have happened if he had declared stolen funds as income and paid a proportion as income tax?

Background

In this case, the Second Defendant ("PC") was the sole owner/director of the First Defendant ("IPORS"), a coverholder company that entered into a number of binding authority agreements with the Claimant insurer ("XL").

IPORS was obliged to inter alia manage claims and collect premiums from insureds on XL's behalf and hold them on trust in segregated premium accounts for XL, before remitting them to XL. Instead, IPORS/PC allegedly under-declared and misappropriated such funds to the tune of nearly '10 million over the course of several years, making large payments to PC's personal accounts and on luxury expenditure (including Manchester United season tickets and c.'25,000 for a night in Paris).

After multiple injunctions (with which PC/IPORS failed to comply) and non-party disclosure orders in support of XL's proprietary and equitable claims, XL discovered that PC had declared on his tax returns as "income" moneys which XL could show were XL's proprietary funds. XL could also show that PC paid the resulting "tax" using XL's premium trust funds.

XL successfully obtained disclosure of PC's tax records from HMRC (XL Insurance Company v IPORS Underwriting & Others [2018] EWHC 2251 (Comm.)) and further information from other disclosure orders thereafter.

Submissions

XL then sought to add HMRC to the proceedings advancing proprietary and unjust enrichment claims in respect to HMRC's receipt of the funds. Essentially, the parallel allegations were that (a) stolen money is not income; and (b) the money HMRC received was not PC's to pay.

HMRC opposed the application on the basis that, even if there was no underlying tax due, HMRC was a bona fide purchaser for value without notice. This was on the basis that under s.59B of the Taxes Management Act 1970 (the "TMA"), a taxpayer must pay the sum stated on his return, subject only to limited statutory exemptions for the taxpayer to amend the return or reclaim an overpayment, the time limits for which had expired here.

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