Courts deal EBTs another blow
A ruling in a recent Scottish court has dealt another hammer blow to the use of Employee Benefit Trusts (EBTs) and left FTSE 100 listed company Aberdeen Asset Management facing a £7 million tax bill.
The Scottish Court of Session ruled that bonuses in excess of £31 million paid to employees and directors of Aberdeen Asset Management via an offshore tax avoidance scheme, were subject to PAYE and NIC. Bonuses paid between 2000 – 2003 had been converted into shares under the scheme thereby avoiding PAYE and NIC. The scheme was made illegal in 2003.
Speaking of the scheme, David Gauke, Exchequer Secretary to the Treasury, said, “This scheme, like so many others, was a waste of time and money. The tribunal decision sends a clear message to anyone who is tempted to use avoidance schemes. HMRC will pursue you and you’re likely to end up having to pay the tax due, interest and the promoters’ fees as well.”
Jim Harra, Director General, Business Tax at HMRC, said,
“This decision will be a big help when we come to argue other cases that are currently in the courts.
We hope this success will encourage more companies to cut their losses and come forward to settle their EBT liabilities on the basis that this kind of avoidance scheme does not work.”
This latest decision will signal more bad news for those contractors who have participated in offshore tax avoidance schemes involving EBTs.
Rather than share conversions however a good number of offshore schemes have used EBTs to provide tax free loans which HMRC are attacking using Chapter 2, Part 13 of the Income Tax Act 2007, the Transfer of Assets Abroad rules. These are very wide ranging and complex anti-avoidance rules which apply where assets have been transferred by an individual, who is ordinarily resident in the UK, to an overseas company, trust or other entity with the main purpose being tax avoidance.
Decision noted, however, why did the ex Rangers Football Club who paid players via EBTs escape punishment?
That decision has been appealed by HMRC and is awaiting hearing
The Tax Tibunal found them not guilty by 2-1, The two were lawers who ruled on lagal technicality. The one was from HMRC and had a 40 page description in of her decision in the 120 page document.
HMRC have appealed and the appeal decision should be published quite soon.
However Rangers were liquidated so I’m not sure the appeal ruling will affect them. It will however effect other clubs in the EPL.
See following article and associated comments.
http://www.heraldscotland.com/news/home-news/hmrc-warns-rangers-ahead-of-appeal-over-36m-tax-case.22568390
Afraid that the writer of the article has been taken in by HMRC and government spin.
The case has no relevance to EBTs in general or specifically Rangers or Offshore Tax avoidance Schemes for that matter.
Firstly the EBT in AAM was used in a very different way to Employer or Contractor type structures. It was a conduit for a Discounted Options structure. This type of structure was promoted by a number of tax advisers up to 2003. In fact, HMRC actually agreed a settlement with a group of clients who did the structure through one provider – that settlement was very much to the tax payers advantage – therefore it was not a waste of time as Mr Gauke suggests.
AAM did their version through another provider. The relevance of the AAM case is that HMRC successfully argued that the liability (which was actually decided 2 years ago) was payable by the employer and NOT the employee. This is actually good news for contractors.
It is correct to state that HMRC is arguing that the Transfers of Assets abroad (TOAA) rules apply to contractors. This may impact on some poorly implemented structures. Again the key issue is the quality of implementation and tax adviser.
The good structures will not be affected at all – the reason is simple – far from the TOAA rules being wide ranging, they are actually specific and how HMRC would like these rules to apply is quite different to the legal position.