HMRC Welcomes FTT’s Avoidance Scheme Ruling
The UK’s First-Tier Tribunal has ruled in favor of HM Revenue and Customs in a case involving a “rate-booster” tax avoidance structure.
The FTT found that the scheme used by Next Brand Ltd (part of the Next group) artificially moved money around the group with the aim of claiming tax relief on overseas profits.
HMRC describes rate-booster schemes as involving an attempt to avoid corporation tax on foreign profits that are paid back to the UK from a subsidiary. The UK company receiving these profits gets credit for any foreign tax the subsidiary paid.
Double taxation relief rules are designed to prevent companies being taxed twice on the same income. HMRC said some companies set up artificial arrangements involving complex circular movements of money between companies in the same group so they can claim there has been double taxation. This enables companies to claim more tax has been paid on the overseas profits than was actually the case.
Legal changes were made in 2005 and 2009 to ensure that rate-booster schemes are no longer possible or attractive.
This is the second rate-booster case to reach the FTT. The tribunal ruled against P&O in 2013. The group appealed and the case is pending. HMRC said that about GBP130m (USD203.5m) in tax is at stake across 20 rate-booster cases. Around 70 rate-boosters have already been conceded by companies, bringing in more than GBP500m in tax, HMRC said.
