UK Revenue faces legal challenge over HSBC tax scandal

The UK tax authority faces a potential judicial review over its handling of the evasion scandal involving HSBC's Swiss subsidiary, it emerged on Thursday.

Lawyers acting for the international campaign group Avaaz have sent HM Revenue & Customs a letter asking for details of its decision to allow hundreds of suspected tax evaders to make use of an amnesty, in the first step of the potential legal challenge.

The move comes amid widespread public anger over revelations of tax evasion involving HSBC's Geneva operations, which have led to a single prosecution. The furore followed the publication in February of many details that originated in a stash of data - known as the "Lagarde list" - stolen by a former employee of the private bank.

Alex Wilks, Avaaz campaign director, said: "If the police extended the terms of knife amnesties to criminals caught carrying weapons, the public would be outraged. Tax officials must urgently explain why they gave 'get out of jail free' cards to so many wealthy tax dodgers."

In a statement. HMRC said: "We will strongly contest any action, on the grounds we used the Lagarde list properly and effectively."

A judicial review - in which a judge reviews the lawfulness of a public body's action - is unlikely to focus on the central question of whether HMRC should have allowed potential tax evaders to use the Liechtenstein Disclosure Facility (LDF), which has allowed UK tax residents with undisclosed overseas assets to pay a limited penalty, because this is a matter of government policy.

The heavy costs and difficulties of proving criminal intent mean HMRC has a longstanding policy of encouraging voluntary disclosures in most cases of tax evasion. In the case of the Lagarde list, HMRC had to find corroborating evidence in addition to the stolen data to mount prosecutions, as well as establish criminal intent.

The letter to HMRC says the grounds for judicial review concern the ability of the suspected tax evaders to use the LDF, rather than another, "more onerous" amnesty that was later opened up with Switzerland.

Leigh Day, the law firm acting for Avaaz, took issue with the flexibility of the LDF, which could be used by tax evaders with offshore funds anywhere in the world.

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The letter sent to HMRC argued that it was in effect "delegating the exercise of its discretion" to Liechtenstein bankers.

The letter asked for more explanation as to why HMRC allowed account holders to use the LDF and asked for its analysis of the impact on tax receipts.

This week it emerged that Margaret Hodge, a politician fiercely critical of HMRC's handling of the HSBC data, received shares from a Liechtenstein foundation after it made use of the LDF in 2011.

The campaigners are hoping to win permission for a judicial review, probably early next year. They believe that a precedent was set in 2013 when the campaign group UK Uncut secured the right to probe the legality of a settlement between HMRC and Goldman Sachs bank in the High Court. The judge found that the settlement was legal, but commented that the incident "was not a glorious episode in the history of the Revenue".

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