HMRC wins £16m in tax avoidance case against Santander subsidiaries
HM Revenue & Customs (HMRC) has won £16 million in a tax avoidance case against Abbey National Treasury Services and Cater Allen International, both part of Santander Banking Group.
The courts have decided against the companies’ attempts to avoid paying corporation tax on the interest on floating loan rate notes.
In this type of loan, the interest rate fluctuates according to the rise and fall in the market interest rates.
Abbey National Treasury Services argued no corporation tax was due on the interest it accrued on these notes, as the rights of which had previously been transferred to its offshore parent company, Santander. Using this argument, they claimed corporation tax wasn’t due.
When the rights to the interest were transferred, Abbey National Treasury Services built in a buy-back option to transfer the rights of interest back at any stage.
Just days after a large interest payment was made to Santander from the loan notes, Abbey National Treasury Services exercised this buy-back option. Therefore they retained the economic benefit of the interest payments, but the company claimed not to be taxable on them.
Four similar cases are awaiting this ruling, which could end up protecting over £86 million in total.
Treasury financial secretary David Gauke said: ‘This is welcome news for all those businesses and families who play by the rules.
‘HMRC has successfully tackled yet another complex avoidance scheme, protecting substantial amounts of tax at stake and is sending a very clear message to anyone tempted – you won’t get away with it.’
Santander is currently reviewing the judgment and is deciding whether to appeal the decision in the coming weeks.
A spokesperson for Santander said: ‘Santander UK plc notes the judgment from the First Tier Tax Tribunal in respect of this historic transaction undertaken by the Abbey National group in 2007. The transaction was permitted at the time and reflected the interpretation of relevant accounting treatments and tax law in force then.
They added: ‘Subsequently, HMRC disputed some of the technical aspects of the transaction. While we accept that we would not undertake a similar transaction now, nonetheless, we felt it appropriate to test whether our, or HMRC’s, interpretation of the legislation was the right one.
Discussions on this transaction started in 2010 and since then we have tried to reach an acceptable solution with HMRC. We could not resolve our disagreement on the legislation and so this transaction was referred to the First Tier Tax Tribunal for a hearing in January.’
