One of the tools available to HMRC to assist in collecting tax is the Mutual assistance for the recovery of claims relating to taxes, duties and other measures…or MARD for short.
MARD is a European Union directive that involves cooperation between the tax authorities of the member states of the EU to assist in the collection of tax debts. Broadly, if a taxpayer owes tax in one member state but resides in another, the tax authority from the state where the tax is due can apply to other state to collect the tax on their behalf.
However, if UK taxpayers, who live in the European Union, receive a notification that an overseas tax authority is attempting to collect tax on behalf of HM Revenue & Customs (“HMRC”), they need to ensure that HMRC have followed the proper procedures. If they have not, then the collection request can be challenged and withdrawn.
Options Available to Taxpayers
If the first a taxpayer hears of the MARD collection process is a letter from a European tax authority seeking payment of the tax, then HMRC may not have followed their own guidance. The guidance found on HMRC’s website it says that they can only make a request for a debt to be recovered if ‘MARD10 SEES letter or equivalent has been sent to the debtor at their overseas address and that the debtor has failed to respond to this.’
We therefore advise taxpayers to review their historical correspondence with HMRC carefully to see if HMRC have notified them of their intention.
Taxpayers should also check when the tax debt became due. If the debt became due over five years prior to the request to the foreign tax authority, then they are under no obligation to collect the debt on HMRC’s behalf.
HMRC are also not able to seek recovery of a debt if it still being contested by the taxpayer. If a taxpayer does receive a MARD notification and they are still in discussions with HMRC then both HMRC and the foreign tax authority need to be notified straight away so that the collection of the debt can be paused.
If HMRC have followed the correct procedure and their position is that the debt is no longer disputed, there are always options available to the taxpayer if they do not agree. A review of the relevant tax treaty may find an incompatibility with local law.
End of MARD?
With the UK now having left the European Union, there is a limited period that HMRC can benefit from this specific tax collection method. As part of the BREXIT withdrawal agreement, the MARD directives will only apply until five years after the end of the transition period between the EU and the UK. The transition period ended on 31 December 2020, therefore HMRC have until 31 December 2025 to use the MARD directives.
HMRC do have other methods of collecting overseas tax debt other than MARD. For example, the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, is a similar convention developed by the Organisation for Economic Co-Operation and Development (“OECD”). Tax treaties between individual countries may also provide scope for co-operation in respect of the collection of tax debts.
As there is a certain degree of cross over between the countries who use MARD and the members of the OECD, HMRC will still be able to collect tax debts even after the end of the transition period. However, we do anticipate HMRC to continue to use the specific MARD directive whilst they still can.
In summary, if taxpayers residing in the EU think that they may be affected by the MARD provisions, they should:
- Determine if HMRC have notified them of their intent to use a foreign tax authority to collect any outstanding debt.
- Check if the disputed debt is still being contested.
- Ensure that the relevant foreign tax authority is kept up to date to ensure that they do not collect any tax that is still under dispute.
We are starting to see an increasing number of requests from HMRC under MARD and other similar worldwide initiatives and we expect this approach to continue. As part of our work in dealing with this we have built up a network of overseas tax and legal experts to help advise on different countries approach to these provisions. This complements our extensive experience in dealing with HMRC on the matter.
If you have received a notification from an overseas tax authority regarding MARD (or another similar initiative) or even a letter from HMRC setting out that it is their intention to approach an overseas tax authority to collect a debt, please do contact me at email@example.com to discuss your options and our current group work in this area.