How To Lose A Tax Tribunal Appeal

Overview Of How To Lose A Tax Tribunal Appeal

It is a rarity when a case travels through to the Tax Tribunal, it is embroidered so luxuriously with fascinating facts as a case that addresses a taxpayer’s disclosure on tax returns, witness credibility, a key witness seemingly absent and gifts heading north of £15m. It is all here and more … including HMRC’s position that it is owed in excess of £20m.

If you are going to appeal an HMRC tax assessment in the Tax Tribunal, then for matters to go your way it is probable that you need to appear to be credible as a witness and have contemporary documents that support the facts upon which you rely.

Welcome to the case of Mullens v Revenue and Customs (INCOME TAX – Whether certain large payments made to the Appellant were taxable as income) [2021] UKFTT 131 (TC). It is quite a lengthy judgment well worth a full forensic review. This post only picks out a few of the highlights.

Stephen Mullens was a solicitor, seemingly extensively involved in the business affairs of Bernie Ecclestone. During the course of that business situation, it seems that he received substantial payments that appear to have had connectivity to that relationship. The payments that HMRC had been training its sights firmly on here were essentially a series of seven payments, of which four, Mr Mullens sought (unsuccessfully) save for the ‘holiday payment’ of c.£187,271, to persuade the HMRC Tax Tribunal that they were gifts. Three other payments were considered by Mr Mullens not to be taxable income but again the Tribunal was not convinced.

The HMRC Tax Investigation: How To Lose A Tax Tribunal Appeal

Stephen Mullens was the subject of an HMRC Tax Investigation known as a Code of Practice 9 (“COP 9”). This is an HMRC Tax Investigation when HMRC suspects tax fraud. HMRC invited him to cooperate and afforded him what is known as a Contractual Disclosure Facility (“CDF”) which is where you ‘come clean’ to HMRC and in return, HMRC will agree not to initiate criminal proceedings for the historical non-compliance and tax fraud disclosed pursuant to the CDF.

However, the Tribunal does not appear to have been happy with what happened as a result of the CDF:

We do not consider that the Outline Disclosure was a full, open and honest disclosure; and we consider that Mr Mullens – at the time – would have known that. Standing back, he was carefully and selectively disclosing only things which now seem relatively inconsequential in the overall context of his financial and tax affairs – interest (unquantified), receipt of funds from Klondike, some share purchases, and some diamonds.

…

A long meeting took place between Mr Mullens, his advisers, and a team of officers from HMRC on 22 November 2012. HMRC made a note, which was provided to Mr Mullens, who then submitted two schedules, signed and dated by him on 15 February 2013, “setting out various points of clarification”. One was “Factual corrections” and the other was “Points of Clarification.” These are careful schedules, and show an extremely close attention to detail on his part. We are confident that Mr Mullens, and his advisers, had considered HMRC’s note of the meeting, and in February 2013 took issue with everything they wanted to, on a line by line basis. This finding is particularly relevant to our treatment of Payment 6, below. We do not consider that Mr Mullens had been open, honest or transparent with HMRC in that meeting. For example, he did not tell HMRC anything about the letters in October 2005 which had preceded Payment 4 (and which, for reasons we set out below, we consider represent the true reason for that payment). Those letters were not provided to HMRC until January 2015. Nor (even if he did not have copies of those letters, or indeed even if he had forgotten about their existence) did he give any information as to the request for payment which those letters had made. Instead – in our view, falsely and misleadingly – he advanced the position that the $38 million received from Mrs Ecclestone was a gift, for which she had not even given any reason. We consider that, even at that point, he was deliberately concealing those facts from HMRC.

The Gifts: How To Lose A Tax Tribunal Appeal

There were payments amounting to around £15m that Mr Mullens asserted to be gifts. These acts of asserted generosity according to Mr Mullens arose because of:

… the direction of Mrs Slavica Ecclestone by reason of a “personal relationship of friendship and affection” between him and her. He argues that payments made “from friendship, as a thank you wholly outside and distinct from any business relationship between the taxpayer and the payer” are not, and never have been, taxable.

The Tribunal considered the position of the gifts and said:

Why would Mrs Ecclestone have given this money to Mr Mullens? This is colourfully captured in the written submission made by Mr Goldberg QC and Mr Firth on behalf of Mr Mullens:

“Born in Croatia, Mrs Ecclestone became a woman of vast wealth with the habit, quite common among people of her class and type, of making what, to most, would seem to be huge payments for no particular reason, rather as a rich aunt might give big presents to her nieces, nephews and close friends.”

However, it seems that the Tribunal was not entirely convinced by such submissions and noted the absence of a seemingly key witness:

The absence of evidence from Mrs Ecclestone, the payer, is especially striking. We are not persuaded that she was genuinely unavailable to give evidence, or that she had a good reason not to give evidence. Therefore, and as part of our overall evaluative exercise, we apply the guidance set out by the Court of Appeal (Brooke LJ, with whom Roch and Aldous LJJ agreed) in Wisniewski v Central Manchester Health Authority [1998] PIQR P324 (itself founded on the guidance of Cockburn LJ in McQueen v Great Western Railway Company (1875) LR 10 QB 569) that, if HMRC makes out a prima facie case to answer, capable of being displaced, and if the party against whom it is established might by calling particular witnesses displace that prima facie case, but does not call them, then the inference fairly arises (but of course only as an inference and not as a presumption) that the omission to call witnesses amounts to something, and not to nothing.

Not only this but the Tribunal rejected a piece of evidence that appears to have been from Mrs Eccelstone:

214. The second document is “the letter annexed”. It does not shed evidential light on the so-styled deed. It reads, in full (in manuscript):

“To whom it may concern

 

This is to confirm that the money transferred to you in April 2006 by the Trustees of the SLEC Trust at my direction was by way of gift from me.

 

I hope this is sufficient for your purposes.

 

Signed (Slavica Ecclestone)

 

20/02/2007”

215. This is a very odd letter, not least since it postdates, by almost a year, the payment made in April 2006. The very fact of the letter is puzzling. The circumstances in which this letter was drawn up are very murky, and its intended purpose is unclear. Mr Mullens’ evidence in this regard was most unsatisfactory. He said that when he was handed back the deed of gift, it didn’t have anything annexed and was not dated “and I thought that I might need at some stage a clear-cut confirmation that the monies she had authorised to be transferred to me in April 2006 had been transferred to me by way of gift.” We reject that evidence.

Mr Mullens

It does not appear that Mr Mullens was found by the Tax Tribunal to be a convincing witness:

It is appropriate here to set out a short passage of Mr Mullens’ cross-examination:

Mr Nawbatt QC: (Reading Paragraph 7 of the Defence) “Between 1995 and 2008 (when divorce proceedings were commenced by the Claimant) the Defendant [Mr Mullens] met the Claimant [Mrs Ecclestone] on only a limited number of occasions” Yes?

 

Mr Mullens: I’m – I’m embarrassed by this. It doesn’t reflect the entire story.

 

Mr Nawbatt: Sorry, you say it doesn’t reflect the entire story and you’re embarrassed by it?

 

Mr Mullens: Yes

 

Mr Nawbatt: You’re a solicitor. You understand the significance of a statement of truth on pleadings; correct?

 

Mr Mullens: Well, I don’t do litigation.”

82. We have no hesitation in rejecting that explanation. The Statement of Truth is not couched in arcane, obscure or ambiguous language. It is meant for all litigants in all cases. It is deliberately plain and simple. It simply asks the maker to confirm that they are telling the truth. Telling the truth is not a concept encountered only in the context of litigation. Moreover, when he signed the Statements of Truth, Mr Mullens was a solicitor of the Senior Courts of England and Wales: a profession which is subject to a Code of Conduct which is permeated by the obligation to tell the truth, and not to knowingly or recklessly mislead or deceive any Court or Tribunal. It is simply incredible that he did not understand the Statement of Truth. We did not believe him. His answer to us was a lie, and was given so as to seek to undermine what he had said, and subscribed to, in 2010.

83. Although Mr Mullens did acknowledge what he repeatedly described as ’embarrassment’, he nonetheless was unable to reconcile his differing positions in any satisfactory way. He did not provide any satisfactory explanation as to why he had (in his own words) not told ‘the full story’ in 2010, when faced with a multi-million pound claim by Mrs Ecclestone, who, on Mr Mullens’ later account, was already his benefactor to the tune of tens of millions of pounds. Nor could he satisfactorily explain why, if he had not told the full story then, in those circumstances, and when he had asked the Court to believe that he was telling the truth, we should now believe that he was now telling us the full story, and asking us to believe that he was now telling the truth. We reject his explanation that the 2010 claim was dealing with a particular claim against him in his capacity as a solicitor and it didn’t actually go into the full personal relationship with Mrs Ecclestone. That explanation was improvisatory and entirely unconvincing. What he had said in 2010 about the level and nature of his contact with Mrs Ecclestone was at stark variance with what he said in his witness statement to us: both could not be right. Mr Mullens accepted that his account of a close fraternal relationship with Mrs Ecclestone was based largely on his word, and was not corroborated by contemporary documents.

84. We have taken account of a letter written by Mr Mullens to Mrs Ecclestone on 27 July 2009 which sets out his request for the loan of up to £15 million which later ended up as the subject matter of the claim brought against him by Mrs Ecclestone. It supports the position that he was on first name terms with Mrs Ecclestone, and that she had expressed a wish to help Mr Mullens and his family move house. It does give a picture, to some degree at variance with the pleadings in that claim, as to the relationship between Mr Mullens and Mrs Ecclestone, and that it was perhaps somewhat closer that suggested in the pleadings. But the letter, read objectively by us, is still not supportive of an overall relationship of the kind which Mr Mullens seeks to portray – namely one where Mrs Ecclestone was so actuated by philanthropic sentiment that she would give Mr Mullens tens of millions of pounds, in a series of unexpected bolts from the blue. In our view, the letter in reality tends to the contrary – the relationship was one where Mrs Ecclestone wanted to help but only for a particular stated reason. Mr Mullens was willing to accept that help, but that help was to be given by way of loan and not by way of gift, it was subject to a written loan note, and Mr Mullens had made it clear that if Mrs Ecclestone had any reservations about the proposed arrangements, Mr Mullens would not wish to proceed. In short, the letter of 27 July 2009 is business-like, albeit business between two people on first name terms.

85. In the course of his oral evidence, Mr Mullens impressed us as a man of great charm and courtesy. Nonetheless, this did not conceal a keen and steely commercial intellect beneath. We consider that he is a commercially and financially sophisticated individual of an extremely high order. We are sure that he is (and was at all times material to this appeal) a skilled and profound strategist, not only in terms of protecting and promoting the Ecclestone family interests, but also – when opportunity has arisen – his own. We are sure that the trust and confidence reposed in him by the Ecclestone family over many years to deal with their legal and financial affairs, and to offer them counsel and advice, was actuated by a well-founded perception of Mr Mullens’ intelligence, insight, and loyalty to them and their interests.

86. His oral evidence to us was not very forthcoming. In some respects (for example, the home invasion) this was understandable and we do not draw any adverse inference from it. But in other regards, it was less understandable. In our view, there was a pervasive want of candour through his oral evidence which we consider reflects a wish to continue to protect the Ecclestone family and their interests, and his own, from undue scrutiny, and to say as little as possible about either.

87. His oral evidence to us was also marked with evasiveness, and a resistance to making obvious and sensible concessions when faced with contrary contemporary documents. One example of this, explored in cross-examination was in relation to the so-called ‘Consultancy Agreement’ entered into by Mr Ecclestone with Bayerische Landesbank (and discussed more fully below). Another example was Mr Mullens’ evidence that he had genuinely believed that he was being interviewed in Germany (on three separate occasions) by the German prosecuting authorities as a witness, and not as a suspect. He never can have held any such view genuinely, or honestly, because the documents (in English) recording what was said in those interviews show that it would have been overwhelmingly clear at the time, even to someone unfamiliar with German criminal procedure, that he was being treated as a suspect and as a potential co-defendant to Dr Gribkowsky and Mr Ecclestone. We do not believe that Mr Mullens ever genuinely believed that he was not a suspect, and his evidence about this to us (for example, ‘Well, it wasn’t clear to me’) was simply not credible, especially from a person of his professional standing and acuity. We reject it as untrue. The untruthfulness in this regard is difficult to understand, because the matter of his status in the German proceedings – whether witness or suspect – does not seem to us to be consequential to any of the issues which we have to determine in this appeal. But in our view, what it does show – consistently with the broad tenor of much of his other oral evidence – is that Mr Mullens was prepared to adopt an untruthful or misleading position even in relation to matters where concession would not have undermined his credibility.

88. When pressed on this point in his oral evidence, Mr Mullens’ sought to advance, by way of explanation, his response to the home invasion which he and his family had suffered in 2009. He said that he had been on medication and that he was suffering from PTSD. But there is no medical evidence to support what he said, and it is in any event difficult to accept that what had happened to him and his family in April 2009 caused him to fundamentally misunderstand what was being said in interviews in Germany in May 2011 (especially when, at the outset of the interviews, he was asked about his health, and confirmed that he was healthy). Likewise, although he said to us in his oral evidence that he could not remember at all times what was going on, no medical evidence was placed before us as to any cognitive or memory difficulties which he had suffered, or was continuing to suffer. This would have been extremely difficult to reconcile with Mr Mullens’ ostensibly extremely detailed factual recall when seeking to explain what had been said in various documents.

89. The inconsistencies between Mr Mullens’ Defence in the High Court and his witness statement to this Tribunal are powerful evidence in showing that Mr Mullens is capable of putting forward – even in the context of formal legal proceedings, and described as the truth – a version of the facts which happens to suit the moment. This goes well beyond working from a single set of facts, but giving them different emphasis or slant from time to time. His evidence to us on this point in our view was decidedly improvisatory. It shows us that he is prepared to obfuscate or mislead – again, as the circumstances and what he perceives as being his own financial interests require.

90. We have concluded that we cannot safely regard Mr Mullens as a witness of truth. We must therefore approach his evidence – both written and oral – with appropriate caution.

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