How the Head of Policy at UK Customs Turned the Tide on Abusive Schemes | CHRIS TAILBY CBE

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Episode Description

In this episode, I interview CHRIS TAILBY CBE, former Head of Tax Policy at UK Customs and Head of Anti Tax Avoidance at the UK Tax Authorities (HMRC).

Tax which is due is a cost for any business and Tax Avoidance is an area of the law that we should all be aware and wary of.

Key Topics Discussed:

• Chris Tailby’s Career Journey: From barrister to tax partner at PricewaterhouseCoopers, to Director of Tax Practice and head of the UK Anti-Avoidance Group.
• Tax Avoidance vs. Evasion: Exploring the legal and ethical boundaries, with insights into landmark cases.
• Duke of Westminster Case: How this precedent shaped tax planning by prioritizing the letter of the law.
• Halifax Case: A pivotal European Court decision that redefined VAT planning and tackled abusive tax practices.
• The IRS & JITSIC & Gordon Brown: Chris’s role in signing the treaty establishing the Joint International Tax Shelter Information Centre.
• Jaffa Cake Case: The quirky legal battle over whether Jaffa Cakes are cakes or biscuits, impacting VAT liability.
• Management Style: Chris’s hands-off approach and emphasis on empowering teams.
• What is required to fight tax avoidance : Analytical skills, attention to detail, and cross-sector expertise as key to a successful legal career.

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Transcript

Justin Hayden Miller: 0:00

On today's programme, we have a Titan lawyer on the show, and we discuss a very important subject for businesses, tax and tax avoidance. Frequently featured in the press, Chris Tailby switched from the private to the public sector to famously dedicate his career to fighting tax avoidance schemes. Here's a taster.

Chris Tailby CBE: 0:23

In Customs and Excise, we we had a we worked on the basis that, you know, you do a scheme, we will challenge it, whether we think we're going to win or not. So, you know, just prepare for a fight. And that would put an awful lot of people off.

Justin Hayden Miller: 0:38

You'll hear about a plane journey with a former British Prime Minister, an international treaty that he signed, as well as his management technique. Welcome to Global Trade Deciphered. I'm your host, Justin Hayden Miller, a global trade lawyer with a leading European firm, decoding the policies shaping global trade and emerging trends. Chris Telby began his career being called to the Bar of England and Wales. He was a tax partner for many years at Pricewater House PWC, where he became Director of Tax Practice in the UK at HM Customs and Excise, where he was responsible for VAT tax technical policy, including anti-avoidance. He was then asked to perform and lead the National United Kingdom anti-avoidance group, challenging tax avoidance schemes across all taxes. Tax personality of the year and voted VAT Rat. Chris, when you retired, you were awarded a CBE, Commander of the British Empire, an award given on the advice of the Prime Minister for a prominent national role. Chris Tailby, welcome to Privileged Discussions.

Chris Tailby CBE: 1:51

Thank you very much.

Justin Hayden Miller: 1:52

I always like to start with the with the most important questions. What is a VAT rat?

Chris Tailby CBE: 1:58

It it came up actually at a conference. I think it was the Chinese New Year emblem was the rat. They came up with the idea of an award, somebody who's made the biggest contribution. And my work on anti-avoidance was seen as changing the tide.

Justin Hayden Miller: 2:14

What fascinates me a lot about your career is that you reached the pinnacle of your profession on both sides of the fence, advising the major worldwide corporations on how best to reduce their tax burdens, and then as head of anti-avoidance, essentially advising the UK government and being responsible for the national governmental department on how to reduce the excesses of tax planning. I was wondering if you could just tell us a little bit about that.

Chris Tailby CBE: 2:43

I think the I mean the concept of acting on both sides is something which I I was very familiar with at the bar. We had the Cabrank principle where the barrister is available for hire, uh basically whoever pays the fee. And I was quite used to that. But then when I was on the other side in government, I was acting for government. And you know, I I didn't see anything different from that. Do you have any views on lawyers acting on both sides of the fence and potentially using knowledge of the industrial I think the Americans are probably better at it than the UK in terms of having people with industry expertise within their tax departments? When we were doing uh anti-avoidance, we had a group which is called JITSIC, the Joint International Tax Information Centre. And and originally it started off with the UK, the US, Canada, and Australia. And I got to know the Americans quite well. And I met my Oppo over there, and I was quite impressed at how many sort of secondes really were employed by the IRS in the States. I actually think there's a lot to be said for a sort of mixture for cross-party cross-fertilization of expertise. Does that answer the question?

Justin Hayden Miller: 4:05

Well, it does, and I completely agree with you. Yeah, yeah. What interests me, Chris, is that you you you you were hired as head of anti-avoidance, as opposed to head of anti-evasion. Avoidance being something which can arguably be legal, notably in cases when not done primarily for a tax advantage. As head of anti-avoidance, you were the head of preventing something which might, according to certain interpretations and in certain cases, be legal.

Chris Tailby CBE: 4:36

I think, first of all, the difference between avoidance and evasion. I mean, evasion is, to put it broadly, basically criminal. I think it was Gordon Brown who famously said the difference between avoidance and evasion is the thickness of the prison walls. But I mean evasion is illegal, it's criminal, it it's basically fraud. I think though that avoidance can easily become evasion. And and I used to argue that people say avoidance is legal. Well, it is if it works, but if it doesn't work, then you're into the realms of evasion.

Justin Hayden Miller: 5:10

Well, I you know, I remember very well when you became head of anti-tax avoidance at the tax authorities, essentially for the UK government almost. Although it wasn't a a political government appointment. And there was a lot of press printed relating to that. I remember one article published by The Guardian was titled Tax Cheats Face Worldwide War. Certainly because of you, Chris.

Chris Tailby CBE: 5:34

I think it's fair to say that I mean, coming back to your point about sort of the The Guardian's headline in the worldwide, that was probably a reference to Jitsi, because interestingly, I I went out with my boss, Dave Hartnett, to the meeting when we set up JITSIC, and we had uh, you know, we had the IRS commissioners, but it became rather clear that Customs Exercise had to actually sign the the treaty, which I I didn't have any authority to do. My boss then was Mike Eland, who was the Director General, and I managed to track him down and I said, Look, it's going to be a bit embarrassing if if I don't sign this. But I said, I've I've read the thing, and I don't think we're committing to anything too difficult. So he said, Well, go ahead and sign it. And and then when I came back, I took it to my team and I said, Look, I've just signed this. Let's go through it and see what the implications are. So I and then you see, coming back on the plate after the meeting where we signed it, we had travelled out with Gordon Brown, who was going to a G7 meeting, and the the Financial Times and all the newspapers that had absolutely front page coverage of Jitsi and my name splashed all over it, and Dave Hartner splashed all over it. Uh and down right at the very bottom was a little reference to the G7 and and the charts of the exchequer. So I I suspect the Guardian article was was written on the back of that. But um, but I mean coming back to the point, I think, you know, one of the big strategies that we had in anti-avoidance was to really make it very clear that if businesses did avoidance schemes, we were going to challenge them. And in customs and excise, we we had a we worked on the basis that, you know, you do a scheme, we will challenge it, whether we think we're going to win or not. So, you know, just prepare for a fight. And that would put an awful lot of people off. Going back to the sort of sea change, I mean, the Duke of Westminster case was about the Duke uh employing a gardener and had to pay him from his post-tax income. But to reduce the tax, the Duke stopped paying the gardener's wage, threw up a covenant, agreeing to pay an equivalent amount at the end of every specified period. And under the tax laws of the time, this allowed the Duke to claim the expense as a deduction. And it was challenged by the revenue, and there's a famous dicta of Lord Tomlin, who said that every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then however unappreciative the commissioners of inland revenue or his fellow taxpayers may be of his ingenuity, he cannot be p compelled to pay an increased tax.

Justin Hayden Miller: 8:32

Um of course it would be I mean, Chris, basically what that means broadly is it's for the legislator to state very, very precisely in the legislation circumstances where something is taxed. And in the event that an intelligent tax lawyer can find a hole in that legislation because it hasn't been written well enough, or the legislator hasn't considered every single possibility that could be used in order to avoid payment of that tax, well then it's tough cookie for the tax authorities and the intelligent tax lawyer should be able to win the case in favour of his client. Agreed?

Chris Tailby CBE: 9:14

Yeah, that's essentially right.

Justin Hayden Miller: 9:16

So we have the Westminster case, which is uh essentially creating this precedent in England and Wales throughout the 20th century, allowing tax lawyers to pick holes in the legislation to the advantage of their clients. And then in 2006, we have the the Halifax decision, which from my mind really creates the the sea change, and it corresponds to around about the same time when you became head of anti-avoidance. Can you explain the the Halifax decision and and its implications for us?

Chris Tailby CBE: 9:45

Halifax was a European court case and was a uh tax planning structure which was designed to improve the recovery of input tax, that's VAT on costs, which were largely non-recoverable because Halifax, basically a bank, most of its transactions are exempt from VAT, which means it can't claim back its VAT. The tax planning structure, but the big issue was whether the taxpayer had a right to deduct input tax, where the transactions on which that right was based constituted an abusive practice. The case went to the European Court and there was a two-stage test. Was there a tax advantage contrary to the purpose of the tax rules? And and was the essential aim of the transaction to obtain a tax advantage? And if if abuse did exist, the transactions involved had to be redefined to re-establish the situation, which would have prevailed in the absence of the abusive transaction. Halifax weren't able to uh recover it. It was undoubtedly a very important case.

Justin Hayden Miller: 10:55

Halifax is it is an important decision, as you underline, because you have the Westminster principle, where a tax advisor can pick holes in the legislation and whatever and advise his client to do something entirely artificial in order to avoid the tax. And then you have Halifax concerning VAT, which says broadly, no, you can't, if the essential aim and purpose of what you're doing is simply to avoid tax uh that just doesn't work for VAT anymore. And I think it's a very important case as well, because you mentioned about the letter of the law, and it brings into question how law should be interpreted. Should it be interpreted by reading the law to the letter, or should you read the law concerning the spirit, the intention of the legislator and what the person I think this is very interesting as well from our US listeners. I'm not a uh at all an expert on US law at all. Hopefully there'll be uh some experts listening in those fields relating to the uh US Supreme Court and whether the Constitution in the United States should be read within the letter of the Constitution or whether it should be more constructively interpreted. Did do you see a parallel there?

Chris Tailby CBE: 12:12

Well, uh the interesting thing was that the Americans didn't go down the route of the the Duke of Westminster, and they had a case at a similar time where they looked at the intention of the legislature and the spirit of the law, and I'm afraid it's far too far back in the midst of time. I have a feeling that Judge Cardozo was involved, one of the justices, but they didn't go down that route, so they were in a different place.

Justin Hayden Miller: 12:38

It's no secret that a lot of people listening who aren't tax lawyers, and perhaps some who are, perhaps I hope not, consider tax to be a an extremely dry and dull subject in the law. Do you agree with that view?

Chris Tailby CBE: 12:52

No, no, I wouldn't. But I mean VAT is is one of those taxes which um throws up all sorts of quirks. Jaffa cake case. There's an interesting case for you. Can you explain that to us? Uh yes, the Jaffa cakes, they're not actually my favorite, but they're sort of they have a sort of sponge base with a thin coating of sort of orange marmalade covered by chocolate.

Justin Hayden Miller: 13:16

And for our French listeners, they're called PIMS or it's the equivalent. Please go on.

Chris Tailby CBE: 13:22

PIMS is something I drink on a hot summer's day. Um but the issue is whether if if you have a a biscuit which is wholly or partly covered in chocolate, that is subject to VAT. If it's an ordinary biscuit without any chocolate, it it isn't subject to VAT. But if it's a cake, uh it can be covered in chocolate, and that would still be zero rated. So the issue in the case was Jaffa cake actually a cake or was it a biscuit? Customs argue a biscuit, but the other side baked a plate-sized version of a Jaffa cake, which they could cut in the same way you'd cut a fruit cake, uh, which is one of the points in the case. Anyway, the I think biscuits go soft if they're stale, and cakes go hard if they're stale. And there was all sorts of evidence about that. And then in the end the tribunal decided that it was a cake and it was therefore zero rated. But I had a case before that, where it was cereal bars, and and there was these cereal bars that got chocolate chips in them. And the administrators in customs said, Oh, well, they're wholly or partly covered in chocolate. And I said, That's absolute rubbish. I said the chocolate is actually inside, so I said it can't be covering it. But I said it's clearly confectionery, so let's challenge it on that basis, which we duly did and we duly won.

Justin Hayden Miller: 14:46

Well, of course Jaffa Cake is uh is a cake. How could how could you possibly call it a biscuit in my opinion?

Chris Tailby CBE: 14:52

It's a fascinating career, actually. No, I think I've I've always enjoyed the work I've I did in text. I think you've got to be a good have a good analytical mind. You've got to be very good at sifting the evidence, you've got to have an eye for detail. You've certainly got to be hard working, you've got to put in the hours and not not cut corners. I think you've got to have a a pretty good intellect. I I wouldn't put myself forward in that in that category.

Justin Hayden Miller: 15:24

Well, that you're being too modest there, Chris. Yeah, far far too modest.

Chris Tailby CBE: 15:27

Well common sense.

Justin Hayden Miller: 15:30

False modesty, I hope not, but yeah, yeah, it's certainly too modest.

Chris Tailby CBE: 15:34

I think a lot of having a lot of common sense, being able and you know, being able to see the wood for the trees, the great advocates of the past were very good at picking up the rear the the sort of nub of the case, you know, the central point. If if you read biographies of people like Norman Burkett, Marshall Hall, you know, the the the old Victorian advocates, they they were great on picking up the one point in the case. And I think that was pretty crucial.

Justin Hayden Miller: 16:03

People who know me and who also know you will know that we actually know each other. You you were my boss at PWC in the tribunal division. I was a lowly starter at the time, and you were a very experienced tax lawyer and partner there. And you gave me my f very first tax case. Yes. Uh you probably you probably remember it. And I think a lot of people internally were thinking, hang on, this isn't right, you know, it should only be partners that take uh take tax cases. Uh you know, do is he any good? Do you know him well enough? He's not gonna screw up or whatever. You know, and we won it. But you you you had confidence in me to give me that case, and that you know, that that set me off, to be honest. But I'd done litigation before. And and something that I'm very, very, very grateful for to you. And perhaps it's because of you in a good or bad sense that I've remained in the field. But you've worked managing in the private sector, and what what's your management style?

Chris Tailby CBE: 17:07

I I think my management style is is is is pretty hands-off. I I always say to people, you know, it's better to put the ball down than to than to drop it. And if you think something's gonna happen, come and tell me before it does happen. That certainly got me through. I've always tried to support my team, and I can think of certainly some cases where things got quite difficult for them, and I like to think that I was there for them. I mean, I managed obviously a lot of staff, some of whom, of course, were very bright. I just like to sort of give people their head. And I remember one of my quite senior guys said, we look to Chris to keep all the rubbish, all the crap off, and uh let us get on with the job. And I think I think actually that's that's pretty important. I think that's what the manager has to do. My mother would have said, let the dog see the rabbit. Let them get on with him. That's that's that's my management style.

Justin Hayden Miller: 18:07

Very, very interesting. You're not a micromanager there, no?

Chris Tailby CBE: 18:11

No, I'm I'm not a micromanager. I think you know you let people get on with it.

Justin Hayden Miller: 18:16

Somebody who'd got very competent, very good people on the job, used to work with them for a period of time in order to to satisfy that you you you you'd made the right decision and then you you trusted the people. That's something certainly I felt from from from from my end. Chris, it's it's been a real pleasure discussing these topics with you today and talking about a period of legal history really, especially in the tax field, which was, you know, uh extremely important. Uh, that the sea change you were not only a part of, but an actor in. And it's as I say, it's a real pleasure and a privilege to having spoken to you today. And we might have you again on the on the show at some pute future point.

Chris Tailby CBE: 19:02

Yeah, well, thanks very much, Justin. Yes, it's it it's been very interesting. It certainly um I won't say dug up skeletons, that's not right, but it certainly um refreshed my memory from from way back. So uh no, it's it's been nice to chat, and um, you know, if you think of something else, well we can talk about that at another time, perhaps.

Justin Hayden Miller: 19:24

Chris Tailby, thank you. If you're listening to this, then thank you for having listened to the podcast from beginning to end. The content of this podcast is intended only to provide an information resource of interest and does not constitute legal, tax, business, or financial advice of any kind. Should you require advice, then you should engage an appropriately qualified person to provide you specific advisory services in the field. The views, thoughts, and opinions expressed in this podcast are my own and do not necessarily represent the views, thoughts, or opinions of any law firm nor that of any third party, other person, company, or organization. Stay tuned for the next episode.