IEIM721060 - Reasonably Expected to Know

HMRC does not expect service providers to do additional external due diligence to establish whether there is a reportable arrangement. A service provider should do the normal due diligence it would for the type of transaction and the client(s) in question. If a service provider failed to do its normal due diligence or found ways to be wilfully ignorant by purposefully not asking particular questions, then it may still meet the test that it could reasonably be expected to know

A service provider may have access to information that would not be read or examined in the ordinary course of business. For example, a lawyer might receive a large volume of documents. In order to do their job effectively, they may need to read only the executive summary. If that is all that is required for them to do their job, then there is no obligation to read the documentation further just in case in subsequent pages there is information that suggests the arrangement could be reportable.

Similarly, if an intermediary received an email which contained information suggesting that an arrangement was reportable, but they did not need to read the email in the normal course of business and had not done so, it would not be the case that they should be assumed to have knowledge of the arrangement just because the information was in the email.

However, it would not be acceptable for an intermediary to deliberately avoid or not read information which they otherwise would have read, to try and avoid becoming aware that an arrangement was reportable.

Particularly in large organisations, knowledge may be fragmented. Attempting to artificially fragment knowledge so that no person has the full picture of the arrangement and therefore no one is in a position to conclude that the arrangement should be reported would not be acceptable. In such a scenario, HMRC would maintain that the intermediary should reasonably be expected to know that the arrangement was reportable.

Where there is no attempt to deliberately fragment knowledge or otherwise circumvent the rules, HMRC would not expect that all knowledge held in the organisation would necessarily be treated as known to one person. What it is reasonable to expect an intermediary to know will depend on the circumstances. Consider the following example:

Two teams at a financial institution are advising a client on a major transaction. One team is focussed on tax aspects, the other team specialises in mergers and acquisitions. The two teams are aware that they are both working on the transaction and have shared information between them where relevant and attended meetings jointly. Separately the director of the client company involved in the transaction makes a comment in passing to a junior member of frontline staff in an entirely separate part of the organisation. This member of staff has no other knowledge of the arrangement being worked on elsewhere in the business, or of the customer’s affairs.

The information held in the two main teams working on the transaction should be assessed as a whole. It is reasonable to conclude that the knowledge of those two teams is known to the organisation itself as an intermediary. However, the knowledge gained by the frontline member of staff cannot automatically be assumed to be known to those teams. The fact that that information might change the analysis of whether the arrangement was reportable does not mean it should be assumed that the intermediary could reasonably be expected to know this.