UK – HMRC WINS TWO TAX AVOIDANCE CASES OVER USE OF OFFSHORE TRUSTS
The HMRC has successfully argued two cases in the First-tier Tribunal involving the use of offshore trusts to avoid tax and National Insurance Contributions (NICs).
The case was brought against Hyrax Resourcing Limited and Curzon Capital Limited. The Tribunal decided in both cases that the disguised remuneration arrangements being promoted were notifiable under the Disclosure of Tax Avoidance Schemes (DOTAS) legislation.
According to HMRC, in both cases, the arrangements were designed to disguise income for which tax and NICs would be due. Scheme users were rewarded with amounts paid as loans which they ultimately owed to an offshore benefit trust.
The Tribunal agreed with HMRC in both of these cases that the arrangements were notifiable under the DOTAS rules.
HMRC describes the disguised remuneration agreements as contrived arrangements that pay scheme users their income in the form of loans, normally routed through an offshore trust in a low or no tax jurisdiction, with the only purpose being to avoid Income Tax and National Insurance contributions. In practice, the loan terms mean that they are never repaid.
In the Hyrax case, the Tribunal stated, “There is no other rational reason for why anyone would implement a convoluted and expensive set of arrangements which left them with a legal (if economically unreal) obligation to repay a sum that they would otherwise have received as salary, save for the expected tax advantage. Objectively speaking, the main benefit that might be expected to arise from the arrangements would be the tax advantage.”
In the Curzon case the Tribunal stated, “There were no corresponding non-tax benefits against which that saving should be weighed… and accordingly it was self-evidently the case that the tax saving was the main benefit that might be expected to arise from the arrangements.”
The HMRC said it would “pursue anyone who promotes or enables tax avoidance.”
Earlier this year, the HMRC won a £40 million tax avoidance case against Hyrax.
On 5 April 2019, the Loan Charge came into effect with the aim of tackling the use of Disguised Remuneration avoidance schemes and targeting those who used the scheme as far back as 1999.
