HMRC International Tax Debt Recovery (MARD & OECD MAC)

Can HMRC seek/recover international tax debts?

Whilst it used to be a rule of English common law that the courts would not enforce the tax laws of other countries (Government of India, Ministry of Finance v Taylor AC 1955) it has become a rather qualified rule by virtue of:

• The European Union’s (EU) Mutual Assistance in the Recovery of Debt Regulations SI 2011 No.2931 (MARD);
• The EU Mutual Assistance in the Recovery of Debt (Amended) (EU Exit) Regulations 2020 (MARD) as implemented by section 87 and Schedule 25 of the Finance Act 2011; and
• The Council of Europe (CoE) and Organization for Economic Cooperation and Development’s (OECD) Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC or MAAC); and
• The International Mutual Administrative Assistance in Tax Matters Orders 2007 and 2011 (SI 2007/2126 and SI 2011/1079 respectively) made under the powers in FA06/s173.

It’s important to note that these are reciprocal agreements. This means that a country can both request and provide assistance. Generally, these debt collection arrangements covers taxes, duties, and other public charges. However, there are specific limitations or exclusions depending on the scope of the international tax debt agreements between countries.

Under the EU MARD regulation & OECD MAC convention, HMRC can both seek taxes owed via overseas EU/OECD tax authorities and can also recover taxes in the UK where a request for enforcement has been made by an EU/OECD tax authority.

What is MARD?

Mutual Assistance in the Recovery of Debt (MARD) is an EU-wide tax co-operation arrangement which allows a tax authority in another country to ask HMRC for assistance in obtaining information, serving legal documents or recovering a tax debt when the defaulting taxpayer is living in, or has assets in, the UK.

If a taxpayer owes uncontested tax debts in one MARD country but resides or has assets in another, the tax authority of the first country can request assistance from the second country to recover the debt.

The 31 countries which are a part of this reciprocal arrangement are:

Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Republic of Ireland, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland and the United Kingdom.

What is OECD/CoE MAC or MAAC?

The Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC or MAAC) is a worldwide international tax co-operation agreement set up in 1988 by the OECD and the Council of Europe. It involves over 150 countries working together to tackle tax evasion and avoidance.

The 197 countries which are a part of this reciprocal arrangement (including ones who have ongoing ratifications and implementation) and these are:

Albania, Andorra, Anguilla, Antigua and Barbuda, Argentina, Armenia, Aruba, Australia, Austria, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Belgium, Belize, Benin, Bermuda, Bhutan, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Brunei Darussalam, Bulgaria, Burkina Faso, Burundi, Cabo Verde, Cambodia, Cameroon, Canada, Cayman Islands, Central African Republic, Chad, Chile, China, Colombia, Comoros, Congo (Congo-Brazzaville), Costa Rica, Croatia, Cuba, Cyprus, Czechia (Czech Republic), Democratic Republic of the Congo, Denmark, Djibouti, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Estonia, Eswatini (fmr. “Swaziland”), Ethiopia, Fiji, Finland, France, Gabon, Gambia, Georgia, Germany, Ghana, Greece, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Holy See, Honduras, Hungary, Iceland, India, Indonesia, Iran, Iraq, Ireland, Israel, Italy, Ivory Coast, Jamaica, Japan, Jordan, Kazakhstan, Kenya, Kiribati, Kuwait, Kyrgyzstan, Laos, Latvia, Lebanon, Lesotho, Liberia, Libya, Liechtenstein, Lithuania, Luxembourg, Madagascar, Malawi, Malaysia, Maldives, Mali, Malta, Marshall Islands, Mauritania, Mauritius, Mexico, Micronesia, Moldova, Monaco, Mongolia, Montenegro, Morocco, Mozambique, Myanmar (formerly Burma), Namibia, Nauru, Nepal, Netherlands, New Zealand, Nicaragua, Niger, Nigeria, North Korea, North Macedonia (formerly Macedonia), Norway, Oman, Pakistan, Palau, Palestine State, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Portugal, Qatar, Romania, Russia, Rwanda, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Sao Tome and Principe, Saudi Arabia, Senegal, Serbia, Seychelles, Sierra Leone, Singapore, Slovakia, Slovenia, Solomon Islands, Somalia, South Africa, South Korea, South Sudan, Spain, Sri Lanka, Sudan, Suriname, Sweden, Switzerland, Syria, Tajikistan, Tanzania, Thailand, Timor-Leste, Togo, Tonga, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Tuvalu, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uruguay, Uzbekistan, Vanuatu, Venezuela, Vietnam, Yemen, Zambia, Zimbabwe.

Assistance Requests under MARD / MAAC

The types of assistance available under MARD / MAAC include:

1. Information Gathering & Exchange: This involves obtaining details about the taxpayer, such as their address, employment, assets, or financial status. It may also include assessing the cost-effectiveness of further actions.
2. Document Service: One country can request another to serve legal documents on the taxpayer.
3. Debt Recovery: The assisting country can employ its standard collection procedures to recover the debt on behalf of the requesting country.
4. Protective Measures: This includes steps like seizing assets or freezing bank accounts to safeguard the claim.
5. Spontaneous / Automatic Exchange of Tax information (under MAAC).
6. Tax Examinations abroad (under MAAC).
7. Other forms of assistance: Includes joint audits, tax examinations, and simultaneous tax examinations (under MAAC).

What is HMRC’s International Debt Unit?

HMRC’s International Debt Unit is responsible for recovering unpaid UK taxes from individuals or businesses based outside the UK. This includes cases where taxpayers have emigrated, have overseas assets generating taxable income, or are foreign entities with UK tax liabilities. The unit tackles the complexities of cross-border debt collection, working with both UK and international authorities to recover outstanding taxes.

HMRC’s International Debt Unit’s strategies include:

1. Support and Enforcement: Negotiating Time to Pay repayment plans for those facing financial difficulties while pursuing those who deliberately avoid paying.
2. International Cooperation: Working with other tax authorities to recover debts through international tax treaties.
3. Prevention: Identifying high-risk taxpayers and implementing measures to prevent debt arising.

Collecting international tax debt is a significant and costly challenge for HMRC as we have discovered in many of our client cases. However, as globalization continues to shape the economy, from HMRC research consultation paper ‘Preventing and collecting international tax debt‘ it seems the unit intends to adapt its strategies towards: Stronger international cooperation, advanced data analytics, and a deeper understanding of taxpayer behaviour.

What actions can HMRC take?

All foreign tax debts referred to HMRC under these arrangements are recovered through the same debt enforcement methods as UK income tax debts. HMRC can therefore take the same legal proceedings in relation to enforcement as they would have done if the tax debt arose in the UK and was payable to HMRC.

However there are strict rules and guidance which HMRC must follow in order to collect the debt for the foreign tax authority. Taxpayers are advised to view their historical correspondence with HMRC to see if HMRC have notified them of their intention. Taxpayers should also be mindful as to the date when the tax debt became due. If the debt became due five years before the request to the foreign tax authority, then they are under no obligation to collect the debt on behalf of HMRC.

HMRC will not be able to seek recovery of the debt if it is still being challenged by the taxpayer. If a taxpayer receives a notification from HMRC’s International Debt Unit Recovery team and the taxes are still under appeal or review discussion then both HMRC and the foreign tax authority need to be notified right away so that the collection of the debt can be put on hold. Time to pay arrangements can also be sought and our team are experts at managing this with HMRC. Obtaining expert legal advice is a must.

How do you challenge HMRC’s Debt Letter or Email?

The taxpayer may challenge the HMRC International Debt Unit’s email or letter if they do not agree with it even if HMRC have followed the correct procedure and the debt is not being disputed. Our Tax Solicitors and Barristers are regularly instructed to act for clients who are facing MARD distress and enforcement proceedings and demands from HMRC. We adopt a bespoke approach on these matters depending on our client’s individual needs.

Depending on the specifics of the case, we may be able to negotiate with HMRC and/or legally challenge the debt and/or the enforcement action taken under the Directive. If you are facing action from the HMRC MARD / MAAC team do not hesitate to contact our UK Tax Lawyers for legal advice.

BREXIT: Future of MARD since UK left the EU

The withdrawal agreement for BREXIT has imposed a time restriction on HMRC’s usage of MARD directives. These directives will only remain in effect for a limited duration, specifically until five years have elapsed after the conclusion of the EU-UK transition period. Since the transition period ended on December 31, 2020, as things stand, HMRC can only apply the MARD directive until December 31, 2025.

However, methods such as the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters can be used as an alternative to MARD for the collection of foreign tax debts. This convention has been developed by the Organisation for Economic Co-operation and Development (OECD). The existence of a certain cross over between the countries that use MARD and the members of OECD will enable HMRC to continue collecting tax debts even after the end of the transition period. Moreover, certain tax treaties between some countries will also provide room for co-operation regarding the collection of tax debts.

HMRC MARD International Debt Lawyers in London

If you have been contacted by HMRC about taxes and and need International Debt Collection advice, we are available to aid you at every stage of the HMRC investigate process. Members of our legal team have first-hand experience and knowledge of the internal workings of HMRC. We can provide you with the very best representation in negotiations with HMRC and defending all forms of HMRC fraud, tax inquiry, tax fraud investigation, criminal tax evasion and HMRC enquiries and investigations.

Our UK tax team specialises in successfully challenging HMRC decisions and will assist you in every aspect of the investigation. Our specialist Tax Solicitors and Barristers deliver expert technical knowledge, strong negotiation skills and respected advice, which can make a pronounced difference to eventual tax penalties, charges and liability.

Our UK Tax Disputes Solicitors & Barristers are available to give information and advice to assist you in challenging the actions of HMRC on their own behalf or on behalf of another tax authority. Call us on London 02071830529 or email [email protected].