UK: Weekly Tax Update - Tuesday 31 May 2011

Last Updated: 1 June 2011
Article by Richard Mannion


1.1. HMRC Toolkits

HMRC has written to us advising that they are currently updating the toolkits published for use with 2009-10 tax returns. The updated versions for use with 2010-11 tax returns will be published between 26 May and 30 June.

The updated MSCR toolkit (Small Profits Rate & Marginal Relief for 2010-11) will be published following Finance Act 2011 to include the revisions to s27 Corporation Tax Act 2010 (attribution to persons rights & powers of their associates) that will affect accounting periods ending on or after 1 April 2011 HMRC has now published 19 toolkits covering a range of tax subjects. The final toolkit on Business Profits highlights the common errors regarding sales, expenses and particular technical areas and is currently in development. That toolkit will be published at the end of June bringing the catalogue to 20 toolkits.

1.2. Effectiveness of the December 2004 Dawn Primarolo statement on retrospective legislation

HMRC has produced a paper evaluating the effectiveness of the Dawn Primarolo statement on 2 December 2004 regarding the use of retrospective legislation to deal with remuneration based avoidance schemes. Its summary includes the following comments:

  • The evaluation, by focusing on employer-provided avoidance schemes, finds robust evidence that the anti-avoidance legislation has already raised additional revenue of £110 million in 2004-05 and £210 million in 2005-06.
  • The final revenue collected for these years is likely to be even higher as the Government will also receive revenue from the closure of third-party avoidance schemes. These schemes are covered by the legislation, but could not be considered by this evaluation without biasing the econometric results.
  • There is also evidence of a reduction in avoidance that preceded the anti-avoidance announcement in 2003/04. This shows that the reduction in avoidance behaviour found after December 2004 cannot be solely attributed to the anti-avoidance announcement. However, we consider that the anti-avoidance announcement has been key in sustaining and reinforcing previous changes in avoidance behaviour. It is very likely that without the possibility of retrospectively implemented legislation, individuals would have sought out further avoidance opportunities in 2004/05 and 2005/06 and earlier improvements in avoidance behaviour would have been lost.
  • In 2004/05 the evidence suggests that the majority of the policy impact in the first (partial) year after the announcement operated through a reduction in avoidance using dividend-based schemes. For this group, we saw a large (and statistically significant) 5.6 percentage point increase in their effective tax rate.
  • In 2005/06 the evidence suggests that the effect of the policy on users of dividend-based schemes continued at a similar level. However the effect also widened to include other avoidance activity. The overall effect was that the wider target group saw a large (and statistically significant) 2.8 percentage point increase in their effective tax rate.

1.3. Working Together issue 43

HMRC has published the latest Working Together bulletin which includes updates on recent changes and developments from HMRC; a summary of the top five open and closed issues from the register; an article explaining the development of the new partnership registration forms SA400, 401 and 402 and an update on a review of how Self Assessment and PAYE employee post is dealt with.

The article included on trade related property is incorrect and should read:

Trade related property valuations

A local WT group said it understood that there were discussions between HMRC/Valuation Office Agency (VOA) and the Chartered Institute of Taxation (CIOT) to explore new or revised methodologies for apportioning the price paid for property and goodwill for tax purposes. The discussions between an HMRC/VOA working group and the CIOT are ongoing and HMRC/VOA will prepare an article to be shared with CIOT with a view to publication in August.

There has been no agreement in principle to an alternative apportionment method but it was recognised that the RICS GN12 provided the established approach to valuing the type of trade related properties involved although RICS GN2 states that apportionment for tax purposes is outside its scope.

1.4. Consultation on the abolition of 36 tax reliefs

In Budget 2011, the Chancellor announced his decision to abolish 43 tax reliefs. This followed the March 2011 report by the Office of Tax Simplification (OTS reviewing the number and complexity of tax reliefs in the UK tax system.

HM Treasury has now published a consultation document seeking additional evidence on the impacts of removing the following 36 reliefs that will be abolished in 2012 or after:

  1. Payments to mariners to be disregarded for Class 1 NICs
  2. Grants for giving up agricultural land E-FRBS
  3. Pool betting duty payments related to safety improvement at football grounds or for the arts
  4. Mineral royalties
  5. Cycle to work days - provision of meals
  6. Late night taxis
  7. Luncheon vouchers
  8. Pools payment for football ground improvements
  9. Pools payment for support for games
  10. Disregard for certain apprentices and students coming to the UK
  11. Assistance in identifying lost or stolen credit cards
  12. Nationalisation schemes
  13. Tax reserve certificates issued by HM Treasury
  14. Payments for the benefit of family members
  15. Class 1A - Exemption for prescribed general earnings
  16. Class 4 - Allows deduction in next tax year of losses incurred in 89/90 or previous tax year where losses from income other than trade or profession or vocation
  17. Deeply discounted securities - incidental expenses
  18. Life assurance premium relief
  19. Life assurance premiums paid by employers under
  20. Capital allowances - flat conversion allowances
  21. Capital allowances - safety at sports grounds
  22. Certain leases granted by registered social landlords
  23. Disadvantaged area relief (Stamp duty)
  24. Exempt Instruments
  25. Partial relief for company acquisitions
  26. Shared ownership transactions
  27. Transfers to registered social landlords
  28. Visiting forces and allied headquarters
  29. Disadvantaged area relief (Stamp duty land tax)
  30. Angostura bitters
  31. Black beer
  32. Land remediation relief
  33. Compensation for mis-sold pensions
  34. Harbour authorities
  35. Harbour reorganisation schemes
  36. Transfers in relation to harbour reorganisation schemes.

The Government has not followed all the recommendations made by the OTS and it intends to keep the Business Premises Renovation Allowance, where abolition would have been inconsistent with the Government's objectives for growth and rebalancing the economy. Similarly, the relief allowing profits averaging for literary and creative artists was judged necessary to maintain stability and certainty for this tax payer group at this uncertain time. In other areas, the Government will instead be looking at how some tax reliefs could be improved. This includes the Community Investment Tax Relief, where the Government will launch a separate consultation on ways to make the scheme more effective in delivering lending to enterprises in disadvantaged areas.

The consultation document states that the Government has also decided to take action on some reliefs where the OTS had recommended a more cautious approach and announces that the Government has decided to abolish two small inheritance tax reliefs which are not integral to the operation of the tax. However it is not stated which IHT reliefs they have in mind.

The OTS report also contained recommendations for simplifying some tax reliefs and for reviewing areas of the tax system where the number of reliefs was indicative of inherent complexity within the tax itself, for example the operation of IHT and the taxation of trusts.

After reviewing the options, the Government has decided only to take action on the abolition of individual reliefs at this time. The report indicates that the work of the OTS will inform any future review of these taxes, but it sounds as though they have been reprieved for the time-being.


2.1. Forms R40

HMRC has written to us to point out that there was a printing error on the forms R40 recently issued to individuals and page 1 showed the date as 'year ending 5 April 2012' rather than 'year ending 5 April 2011'.

HMRC has confirmed that it will accept these completed forms as relating to tax year 2010-11 and individuals should complete them with details for the current year as usual. HMRC will then log the forms for the 2010- 11 tax year.

2.2. Foreign Pensions of UK Residents and Anti-Avoidance

The Exchequer Secretary to the Treasury (David Gauke MP) has issued the following written ministerial statement:

"On 6 April 2011 the Government announced a change in legislation to prevent tax avoidance. The Government has set out a clear strategy on preventing tax avoidance. We will not hesitate to take action to stop those who seek to take unfair advantage of unintended tax loopholes. The measure demonstrates our commitment to act quickly to close these.

Legislation published for consultation will be introduced in Finance (No.3) Bill to prevent individuals from taking advantage of a tax loophole that would have emerged had the Government not taken action. It will provide that, notwithstanding the terms of a double taxation arrangement with another territory, a payment of a pension or other similar remuneration may be taxed in the United Kingdom where:

  • the payment arises in the other territory;
  • it is received by an individual resident of the United Kingdom;
  • the pension savings in respect of which the pension or other similar remuneration is paid have been transferred to a pension scheme in the other territory; and
  • the main purpose or one of the main purposes of any person concerned with the transfer of pension savings in respect of which the payment is made was to take advantage of the double taxation arrangement in respect of that payment by means of that transfer.

In the event that tax is paid in the other jurisdiction, appropriate credit will be available against the UK tax chargeable.

The legislation will have effect in relation to payments of pensions or other similar remuneration made on or after 6 April 2011."


3.1. Capital Allowances and the acquisition of a property by way of long lease

Where a business acquires a property on a long lease for a lease premium (or capital payment) and the property includes fixtures installed by the lessor, qualifying for plant or machinery (P&M) allowances, it will be necessary to consider who is entitled to allowances on that P&M.

Fixtures (which qualify as P&M for capital allowances) included in the lease of a building leased for a period of more than seven years could, without further provisions, be regarded as leased under a long funding lease. If the P&M was subject to the long funding lease rules, capital allowances on the P&M would be available to the lessee and not the person who had incurred the expenditure (the lessor). However, where the fixture P&M is regarded as 'background' P&M, or if not background P&M is of low value in relation to the land and 'background' P&M, then it is not subject to the long funding lease rules.

Most general fixtures qualify as background P&M and the detailed list of what qualifies and what does not is set out in CAA01 s70R-T and SI2007/303. Other P&M leased with land is of low value if its market value is less than 10% of the market value of background P&M, and less than 5% of the market value of the land (including buildings and fixtures).

However where the lessor and lessee are unconnected and the lessor is entitled to allowances on the fixtures (or would be if within the charge to tax), it is possible for the lessee and lessor to elect for the lessee to be treated as the owner of the fixtures P&M (instead of the lessor) for capital allowance purposes, for the element of the premium or capital payment relating to those fixtures. The legislation for this can be found at CAA01 s183, subject to the restriction in s185 of not being able to obtain allowances on a capital value exceeding the disposal value for the vendor plus any new expenditure on building alteration connected with its installation. The election must be made within two years of the date on which the lease takes effect.

A lessee who incurs capital expenditure on fixtures during the period of their lease will be entitled to claim capital allowances on any qualifying plant or machinery subject to the normal rules. Where the lease terminates and ownership reverts back to the lessor, unless the fixtures installed by the lessee are removed, they will become the property of the lessor. However on the assumption that the lessee has claimed allowances on that P&M, the lessor will not be able to claim allowances on any value attributable to those fixtures unless the lessee is required to bring into account a disposal value, which would normally requires some form of consideration.

Capital allowances on acquisitions and disposals of property can be complex and there are particular strategies for avoiding unexpected disposal values in respect of fixtures, which should be taken into account as part of the acquisition/disposal negotiations. Employer asset backed pension contributions

Following the announcement at Budget 2011 HMRC has issued a consultation on employer asset backed pension contributions.

A method of funding defined benefit pension contributions increasingly being used by large employers is to fund the scheme with a series of payments guaranteed with security over the assets from which the payments derive, rather than making a one-off lump sum contribution.

Asset-backed income streams can have advantages for employers over a simple up-front cash contribution. Payments can be spread over several years and the overall contribution can be adjusted by agreement to take account of changing economic circumstances and deficit levels. The arrangements can also provide security to pension schemes, which have a right to the underlying asset if the income stream ceases or the employer becomes insolvent. Such funding structures can meet both the commercial needs of employers and offer pension schemes secure, high-quality funding.

Some asset-backed funding arrangements may give rise to tax relief that is greater than the fair value of plan assets received by the pension scheme. This can arise where tax relief is given twice: up-front for the discounted value of a future income stream and again for each instalment of the income stream. It can also arise where the employer structures an income stream so that it is conditional on the future funding position of the pension scheme, resulting in a situation where tax relief given up-front may exceed the final value received by the pension scheme. These unintended effects result from the complex interaction of tax and accounting rules.

In summary an employer can secure unintended tax relief (in the view of HMRC) in the following manner:

  • Relief is given before a contribution is received by the pension scheme;
  • Relief is doubled as a result of mismatches between accounting and tax rules; and
  • The value of the relief is retained even though the value of the payments actually received by the pension scheme is much lower than the tax relief given to the employer.

Two options are considered for reform:

Option A – providing relief only when cash is received by scheme

This would remove automatic upfront tax relief for asset-backed contributions. Instead, employer tax relief would be given only when cash actually changes hands between the employer and the pension scheme, or when the scheme acquires full title to an asset that can readily be converted into cash (for example a traded security).

Option B – aligning tax rules with accounting rules

This would involve amending existing tax rules to ensure that the tax treatment of the arrangements as a whole (not just the part that governs tax relief for pension contributions) accurately reflects the economic substance of the transaction. This means that the tax treatment of the arrangements would generally follow the relevant accounting rules over the period of the arrangements. The main difference would be that where arrangements are recognised as financial liabilities in the accounts, upfront relief based on the accounting value of the asset would be available. If they are accounted for as equity, upfront pensions tax relief would not be available.

3.2. Draft guidance on SDLT and transfers of multiple dwellings

HMRC has issued its guidance on the application of the new relief for transactions involving multiple dwellings.

Where the relief is claimed, the rate of Stamp Duty Land Tax (SDLT) which applies to the consideration attributable to interests in dwellings is determined by reference to the amount of this consideration, divided by the number of dwellings, ie the mean consideration attributable to the dwellings. This is subject to a minimum rate of 1%.

The rate of SDLT which applies to the consideration attributable to interests in land other than dwellings, if any, is the rate which would apply in the absence of the relief. Finance Bill 2011 contains a paragraph on what counts as a dwelling. This includes land that is, or is to be, occupied or enjoyed with a dwelling as a garden or grounds. The guidance indicates HMRC will apply a similar test to that applied for the capital gains tax relief for main residences - TCGA92/S222(3). This raises the question as to whether a dwelling with grounds in excess of that attracting CGT main residence relief would be regarded as non-residential for SDLT (residential rates of SDLT apply only to those properties which are wholly residential – FA03 s55(2)).

3.3. Draft guidance on Finance Bill 2011 foreign branch and controlled foreign company provisions and note of proposed amendments

HMRC has published draft guidance on Finance Bill 2011 schedule 12 (interim CFC measures – guidance covers 19 pages) and schedule 13 (exemption for foreign branches – guidance covers 42 pages).

A number of amendments to Finance Bill 2011 have been put forward as follows:

Schedule 12: amendments 118 - 122 Schedule 13: amendments 123 – 128

3.4. Estate 4 Ltd:TC01131

In this case the First Tier Tribunal considered an application by the company to close a HMRC enquiry.

On 14 December 2009 HMRC issued a notice under paragraph 24(1) of Schedule 18 to the Finance Act 1998 ("Schedule 18") in respect of Estate 4's return covering the year ended 31 December 2007. The accounts for that year showed a turnover of £197,000 and an adjusted net loss of £68,083 after directors' salaries of £116,500.

Estate 4 Ltd (Estate 4) was incorporated on 27 March 2006. Initially the sole director had been Riccardo Crivelli, who had resigned on 1 February 2007. The two directors who replaced him were Alessandro Crivelli and Massimiliano Senise.

HMRC became aware that a former Post Office sorting station in Howick Place, London, had been purchased by an offshore company for £19.5 million on 7 February 2006. HMRC found information from the internet suggesting that Mr Alessandro Crivelli and his company Estate 4 held an interest in the site and were heavily involved in its development.

Howick Place had been purchased by Fabbriche Ceramiche Investments SARL ("FCI"), a Luxembourg company registered on 12 August 2005. FCI was owned by Fabbriche Ceramiche 27 SARL, an Italian company incorporated on 15 October 2002; it had also financed the project. This Italian company had a number of shareholders, including Alessandro Crivelli.

Alessandro Crivelli explained at a meeting requested by HMRC that Estate 4 had not carried out any of the project work, but, as he put it, "acted more like a conductor" overseeing the project.

Under an advisory agreement Estate 4 was to assist FCI during the commercial activity relating to Howick Place, promoting and co-ordinating the selling and letting of the units into which that property had been divided, and was to have sole selling and letting rights. In return Estate 4 would receive a monthly fee of £10,000 plus a commission for each unit sold or rented.

HMRC was concerned about a number of issues. Estate 4 was an adviser; was it possible that its level of remuneration was not correct? Could it be an adviser to the Italian company? A transaction involving development and sale could involve trading profits. These would be separate from the profits declared by Estate 4. The Inspector wanted further information to determine whether Alessandro Crivelli or Estate 4 was acting as the UK permanent establishment through which FCI carried on its property trade in UK

The company referred to paragraph 1 of Schedule 18. This made clear that references in Schedule 18 to "tax" were to corporation tax. Paragraph 25 of Schedule 18 indicated that an enquiry into a company tax return extended to "anything contained in the return, or required to be contained in the return". This provided checks and balances for a company where its return was subject to enquiry. Paragraph 33 of Schedule 18 was available to a company where HMRC had not closed an enquiry in accordance with paragraph 32; under paragraph 33, the company could apply to the tribunal for a direction that HMRC should give a closure notice within a specified period. In particular paragraph 33(3) required the tribunal to give a direction unless it was satisfied that HMRC had reasonable grounds for not giving a closure notice within a specified period. This made it clear that it was for HMRC to prove their case if they resisted the application for a closure notice.

FCI made its own UK tax returns, and if there was any liability to tax falling on FCI and that tax related to income derived through Estate 4, such tax would not be corporation tax to which Estate 4 would be liable in its own right. Under s 6 of the Corporation Tax Act 2009, a company was not chargeable to corporation tax on profits which accrued to it in a fiduciary or representative capacity, except in respect of any beneficial interest it had in the profits.

The company's view was that HMRC was seeking to use the enquiry into its return as a "bridge" into other issues.

The tribunal agreed with the company and directed that the enquiry should be closed.

The case report indicates that HMRC had embarked on a classic "fishing operation" and the Inspector was trying to find out detailed information from Estate 4 which related to third parties' tax affairs. The decision serves as a useful reminder of the role of the tribunal in ensuring fair play between taxpayer and HMRC in connection with the conduct of tax enquiries.

4. VAT

4.1. Transfer of a going concern and recovery of input VAT

The case of 3 Net Media Group Limited (formerly The Orb Group Limited) considered whether input VAT charged on an invoice for the transfer of fixtures (£8,000) and rights to existing customers (£52,000) where the input VAT had been reclaimed, was recoverable by HMRC on the basis that it should never have been invoiced as the transaction was a transfer of a going concern (TOGC) which should have been treated as outside the scope of VAT.

The claim for input VAT recovery on the invoice came to light during a routine VAT inspection and had arisen on a transfer of assets from a company called Orb Communications Limited. The contract for the transfer provided that it should be treated as a TOGC for VAT and as outside the scope of VAT. 3 Net Media Group Ltd believed that Orb Communications Limited had accounted for the output VAT, however it turned out the company had gone into liquidation some months before the invoice date and no output VAT on the transaction had been accounted for.

The Tribunal agreed that the sale of assets was in fact a transfer of a going concern and should have been treated as outside the scope of VAT. They therefore held that VAT should not have been charged on the invoice and that 3 Net Media Group was not entitled to reclaim it as input tax. HMRC's assessment to recover the incorrectly recovered input VAT was therefore held to be valid.

The decision does not contain any further background on the relationship between the parties involved, but illustrates the care needed in drafting and paying heed to the terms of a contract for the sale of a business and assets, particularly from a VAT perspective.

4.2. Compound interest claims and Grattan plc

Grattan plc had made claims to recover overpaid output VAT on the basis of having incorrectly declared the VAT on the gross amount received for purchase of catalogue goods by their agents. Those agents had used commission from Grattan plc that they had accrued for organising catalogue sales, to make the purchases. There was a dispute as to the amount reclaimable (including compound interest) and as to the question of unjust enrichment.

The First Tier Tribunal decided in January 2011 to refer a question to the CJEU as to whether, in relation to the period before 1 January 1978, by virtue of Article 8(a) of the Second Council Directive of 11 April 1967 (67/228/EEC) and/or the principles of fiscal neutrality and of equal treatment, taxable persons have a directly enforceable right to account for VAT in respect of supplies of goods by reference to the consideration that is actually received by the supplier (that is, reduced by any discount or reduction).

The Tribunal had also decided to stay proceedings on the question of compound interest pending the outcome of questions put to the CJEU following the Littlewoods Retail Limited case (EWHC 2771 [2010]). In the light of further representations however, it was decided to refer further questions on compound interest to the CJEU, that were not covered by the reference by Littlewoods Retail.

The final form of the questions depended on further representations and this case report indicates the First Tier Tribunal have agreed to stay proceedings further until HMRC's application to appeal to the Upper Tribunal has been heard and determined.

4.3. VAT recovery on staff costs

Sally Moher trading as Premier Dental Agency (PDA) appealed against HMRC's decision to refuse a repayment claim of £609,119 relating to overpaid output VAT on the supply of dental staff, covering the period 1 January 1985 to 31 December 1996.

The business made two types of supply: (i) temporary dental staff to dentists, which was the disputed supply; and (ii) private permanent staff to dentists for an introduction fee. The core business was the provision of temporary dental staff comprising 97% of the business. There was also a small supply of dental technicians which was a nominal part of the business. The business sourced nurses and employed them under a contract for services, accounted to HMRC for their PAYE, National Insurance, and Employers' National Insurance. PDA had not retained any copies of the terms and conditions of engagement applicable either to their staff or to clients during the relevant period.

PDA treated the nurses as employees and the dentist or dental establishment to which the nurses were despatched were invoiced on the basis of a standard hourly rate. In circumstances where PDA supplied a dentist with a nursing auxiliary rather than a nurse, the auxiliary worked alongside and under the supervision of the registered health professional. The business was sold in 1999 to Premier Employment Agency Limited and a claim for recovery of output VAT for the quarter ended August 1999 to June 2001 was eventually settled at £212,112. However the subsequent claim for £609,119 was refused on the basis of HMRC's revised view that supplies of staff are not 'care or medical care' (but standard rated supplies of staff), and that their previously published guidance amounted to an informal concession.

VAT exemption for medical services in this case applies in respect of services of appropriate qualified staff supplied to patients. However this did not cover supplies of staff to dentists. However PDA contended it was acting as principal and not agent, and that therefore its supplies were exempt, drawing from the decision in Reed Personnel Services Ltd [1995] STC (588).

However on examination of the evidence the Tribunal found greater support for the fact that PDA had been acting as a supplier of staff rather than as principal and supplying services that those staff performed. In a letter in 2005 (evidence from the period subject to the claim was difficult to find) PDA had asserted "The dental nurses are supplied to the dentist at an hourly rate and, whilst at the dental surgery, they are under the complete instruction and control of the dentist and we have no direct involvement in the work that they do". PDA therefore by their own admission, provided staff that were wholly controlled and supervised by the dentist to whom the staff was provided (i.e. PDA were not acting as principal). Their invoices were not split between agency commissions and wages.

The Tribunal found that the fact that: (i) an initial repayment was made to PDA; and (ii) HMRC's interpretation of the law at the time of that payment was different from their position on the interpretation of the law at present; was not determinative in the question of this case. The appeal was therefore rejected.

Considering whether supplies are of staff or of services and whether a business is acting as agent or principal may be relevant to the current focus on potential recovery of VAT on supplies of staff by agencies. For further discussion please get in touch with your usual Smith & Williamson VAT contact.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Richard Mannion
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From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.