Guess Who the Record Condemned as “Morally Bankrupt” with “Indefensible Greed” for Using “Sleight of Hand” to Avoid Taxes?

Whilst the First Tier Tribunal found, by a majority, in favour of MIH in the EBT case, the judges on all sides were of a mind that the scheme used was an artificial one for the purposes of reducing tax bills. The majority found that the form triumphed over the substance, whilst the dissenting judge favoured the reverse. These issues will be dealt with again, should HMRC decide to appeal.

As the majority commented:-

“The terms of the Appellants’ internal memos and communications anent the operation of the Remuneration Trust were highlighted by Mr Thomson. This had been a major feature emerging from HM Inspectors’ investigation. While these are suggestive of “aggressive” tax avoidance, we are conscious that they were composed by lay persons without specialist legal experience.”

And

“We are unable to make further Findings-in-Fact in support of there being an orchestrated scheme extending to the payment in effect of wages or salary absolutely and unreservedly to the employees involved”.

Dr Poon, in the minority said:-

“I disagree that the legal form of a transaction with its corollary legal effect is conclusive as a dictum in applying the Ramsay principle, and make extra Findings-in-Law regarding Ramsay and its application to the present case.

And

“I am guided by ‘the ultimate question’: ‘whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically’. To that end, the facts that inform me regarding the realistic nature of the transaction are more widely characterised than the legal form of the transaction.

And

“Secondly, in following the edicts for any trier of fact laid down in Heaton v Bell [1970] AC728 at 748B [Lord Morris], ‘The quest must be to find the realities of the arrangements that were agreed,’ and at 760E [Lord Upjohn], ‘having ascertained the real nature of the transaction, you cannot … disguise it by using camouflaged clothing’, I have highlighted areas of conflicting evidence and drawn my conclusions as to what I regard as the real nature of the transaction.”

It is fair to say that there was no attempt, as far as I am aware, by MIH to suggest that this was a scheme devised for anything other than tax purposes.

The general tide of press coverage since the decision has focussed on the folly of HMRC in pursuing the case at all, and the damage done to Rangers as a result of the claim for millions of pounds of taxes.

This seems rather out of step frankly with the tone of coverage in recent months of tax issues for companies such as Starbucks, Amazon, Google, the BBC and Vodafone, amongst many, and of celebrities such as Jimmy Carr, condemned by the Prime Minister for his “immoral” use of a legal tax reduction scheme.

It was good to see the Daily Record make an outspoken attack on those who had run Rangers in the past, leading to the millions of pounds of indebtedness which still remains, as a result of the “Wee Tax Case”, Mr Whyte’s failure to pay PAYE and VAT, and the sums which will be due by MIH/Rangers (the latter in liquidation) by way of taxes, interest and penalties. Millions of pounds of taxes are owed by Rangers (oldco) and will not be recovered.

In addition, oldco was not a profitable business and therefore, despite turnover of over £50 million annually, no Corporation Taxes had been paid by the football club for many a year.

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As the Record thundered:-

The … giants haven’t paid a bean to the UK taxman for the last three years.

The best … in town couldn’t make this outrage any easier to swallow.

When the average person in the UK is being told to accept swingeing cuts, a corporate giant …(is) using sleight of hand to avoid paying up.

The company … (is) morally … bankrupt.

And while they are acting within the law, their greed is indefensible.

They have paid almost no UK tax … for the past decade.

Their millions of customers will be choking on their muffins at that news.

Big business tax dodges rob those same communities of desperately needed investment in hospitals and schools.

Other global companies such as Google, Amazon, Facebook and Vodafone have employed similarly legal accounting to avoid big tax bills in Britain.

Left to their own devices, these ­companies would carry on avoiding tax, so any loopholes should be closed.

While HMRC appear helpless against the might of the corporate giant, customers have the most effective tool of all – spending power.

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That says it all, doesn’t it? A brave and principled stance against the use of artificial schemes to avoid tax, even where those schemes are legal.

Well done the Daily Record!

…

Hang on a minute

There seems to be some mistake …

I seem to have been confused. Those quotes are in fact from a Record Opinion column in October 2012 addressing Starbucks and the lack of Corporation Tax paid by it in the UK. (It should be pointed out that the companies mentioned above, whilst engineering their affairs legally to minimise taxable profits do pay millions in VAT, business rates and other taxes – although oldco did not manage that either).

Well, I am sure that the Record coverage has maintained the same principled stance regarding Rangers, following the decision that its artificial tax reduction scheme was, in the main, within the tax laws.

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As the Record reported the outcome of the hearing last week:-

RANGERS Football Club has won its appeal over a near £49m tax bill for the use of Employee Benefit Trusts. The first tier tax tribunal which heard the appeal today delivered a majority verdict which ruled the EBT payments were loans that can be repaid.

It said: “controversial monies received by the employees were not paid to them as their absolute entitlement”. The club, which is now in liquidation, used the scheme from 2001 to 2010 to make almost £49m in payments to players and staff in the form of tax-free loans.

They had argued that the payments had been loans rather than wages and not subject to tax.

No verdict on any sum that the oldco Rangers were liable for was included in the findings, but Sir David Murray’s company welcomed the verdict as vindication of their stance.

Oldco Rangers had previously stated they could be liable for up to £75million but the tribunal ruled that Her Majesty’s Revenue and Customs assessment should be “reduced substantially” with only some payments subject to tax.

“It was conceded that advances in favour of certain players are taxable and liable to NIC (National Insurance Contributions), and 35 we have found that, in certain other limited instances, there may be a similar liability. To that extent the assessments should stand. In these circumstances we expect that it is sufficient that we allow the appeal in principle. Parties can no doubt settle the sums due for the limited number of cases mentioned without further reference to the tribunal.”

Murray International Holdings, who were majority shareholders of the oldco club until Craig Whyte’s takeover in May 2011, released a statement this afternoon which read: “We are satisfied that the Tax Tribunal has now published its widely awaited decision and note the contents thereof.

“We are pleased with the judgement which leaves minimal tax liability and overwhelmingly supports the views collectively and consistently held by our advisers, legal counsel and MIH itself.”

[The reader might note the wording of the sixth para of the Record piece, where the number “35” appears in a sentence referring to other cases where there is tax liability. The Record has been caught out by the formatting of the judgement, where line numbers are noted in multiples of five. Accordingly the figure does not refer to the undisclosed number of cases where there is tax liability, but has been taken by readers as doing so.]

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The Record also described Sir David Murray’s reaction:-

SIR David Murray wants a full investigation into the tax operation that made Rangers a toxic brand. A source close to the former Ibrox chief claimed Her Majesty’s Revenue & Customs had a vendetta against the club.

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James Traynor reported:-

HMRC had been pursuing the Ibrox club for almost £90 million but Rangers won their appeal against the tax bill plus penalties by two to one. It was a dramatic victory for the club but also a bitter sweet one.

Rangers fans and former directors were asking last night why their club had been forced into a corner and although they recognise Craig Whyte as the chief culprit they want to know why HMRC were so determined to chase a bill that should never have been issued.

Some are demanding a full inquiry into the taxman’s behaviour now the First Tier Tax Tribunal have ruled Rangers should not have been hit with the bills in the first place.

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Keith McLeod, in a piece titled “How taxman probe took Rangers to the brink of oblivion” wrote:-

RANGERS’ demise was triggered by the HMRC probe into Employee Benefit Trusts. Investigators claimed the Ibrox club owed £40million. Interest and fines on top of this would have taken the total to £80million.

The level of potential tax liability effectively made Rangers unsellable, at a time when bankers were holding a gun to Murray’s head over a smaller Rangers debt of £25million.

In February, Rangers were put into administration. But again, with potentially millions of pounds to pay out to creditors, even with a pennies in the pound agreement, the club were virtually unsellable.

As HMRC had been, it now appears wrongly, identified as the biggest creditors by Rangers’ administrators Duff & Phelps, they had the final say. Because Whyte had deliberately withheld £14million in tax from HMRC it allowed them to close Rangers down.

Yesterday, it looked as if Rangers have been found not guilty – long after the death sentence had been passed.

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Keith Jackson reported on Paul Murray, erstwhile Rangers director, and his views as follows:-

Now that the Big Tax Case has crumbled leaving Rangers in the clear, Murray is in search of answers.

Who was responsible for allowing this saga to rumble on for so long, creating a climate of such anxiety and uncertainty that a man such as Whyte was able to walk in through the front doors of Ibrox and seize control?

Why did it take almost two years to deliver a verdict on an issue which hung over the club like the sword of Damocles?

And now that it’s been settled in Rangers favour, who should pay for all the damage that has been done?

Most of all, though, Murray wants to know how it could possibly be that a 140-year-old institution could be placed in such a perilous position by the authorities. And if any of those dealing with the crisis were acting out of malicious intent.

He said: “I have to ask myself were people acting with a degree of malice towards Rangers? The answer to that is, I simply don’t know. But what I am saying is that there is certainly enough concern, loose ends and unanswered questions around this to absolutely warrant some kind of investigation.

“That’s why I believe BDO have a moral and legal responsibility to look at the whole chain of events, stretching back two maybe even three years, which ultimately led to the demise and liquidation of the ‘oldco’.

“I want them to look at the actions of all the parties involved and then, on the basis of that, decide whether they should be pursuing damages on behalf of the stakeholders.”

Those damages, Murray believes, could be substantial. And by substantial he means mind-boggling, perhaps well in excess of £50m.

The ultimate irony, however, is that any successful legal claims would be paid straight into the oldco’s creditors’ pot – and the vast majority of it would quickly be gobbled up by HMRC who were owed £15m in missing PAYE by Whyte’s crooked regime.

“Also, there has to be some explanation given for exactly why it took so long for the tribunal to deliver its verdict. When I left the board in May 2011, we expected a verdict to come that July, just two months later. I think Craig Whyte was banking on that because he did not have the funds required to run the club on a long-term basis, especially when the team was knocked out of the Champions League qualifiers by Malmo.

“But here we are, some 18 months down the line, and now we discover that Rangers were not guilty. Again, I have to ask why did it take so long to reach that verdict and create such a crippling atmosphere of uncertainty? Without all that confusion Whyte would never have won control.”

He said: “You do have to accept HMRC have a statutory duty on behalf of the public purse to pursue what they regard as tax avoidance. So it is perfectly acceptable for them to challenge this kind of thing. In fact, it’s their job. But what I find very concerning – and what needs to be looked at – is the length of time it took them to come to this decision and the massive damage this delay caused. And by damage I’m talking in particular about having the keys handed over to a man such as Craig Whyte.

“At that time no one credible would have invested in Rangers, when this contingent liability was hanging over the club. It was insanity and I said that at the time. I stepped forward with an alternative deal but I made it clear I wanted David Murray to take the liability on his shoulders. He refused to do that and sold to Whyte, who agreed to take the liability on. I said at the time it was complete insanity and we can now all see for ourselves the full result of that insanity.”

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No references I can see to

this outrage;

a corporate giant using sleight of hand to avoid paying up.

morally bankrupt.

their greed is indefensible.

big business tax dodges rob those same communities of desperately needed investment in hospitals and schools.

while HMRC appear helpless against the might of the corporate giant, customers have the most effective tool of all – spending power.

One would be doubtless wrong to suggest that a different moral standard is on display here?

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And finally, note the words of Paul Murray, the former Rangers Director. He was a director when the EBT Tax assessments were being served. He was a director when the appeals against those assessments were lodged, and for most of the time the appeal was ongoing. He was a director when the Wee Tax Case liability was accepted (but not paid). He was a director whilst players and other employees were in receipt of loans paid via EBTs. He is a financial high-flyer, as described by the Record, and is an accountant, as I understand his business interests.

I will repeat a quote extracted from the article above:-

“You do have to accept HMRC have a statutory duty on behalf of the public purse to pursue what they regard as tax avoidance. So it is perfectly acceptable for them to challenge this kind of thing. In fact, it’s their job. But what I find very concerning – and what needs to be looked at – is the length of time it took them to come to this decision …”

His statement that HMRC has a duty to pursue matters is the only comment of that nature I have seen from a Rangers-connected individual since the case was heard, and Mr Murray is quite right to say that.

However, how does he blame HMRC for the time it took to resolve the case? The case only went to the FTT because Rangers/MIH appealed. The case took so long mainly because of the number of witnesses called by Rangers/MIH and the number of documents they produced.

The whole process took from 2004 to 2009 before the full picture upon which the Tribunal decided appeared, mainly because Rangers were most uncooperative in handing over any information at all, as determined by Dr Poon.

I wonder if the Record will add oldco Rangers into its list of Vodafone, Starbucks, and Amazon etc – at least those companies pay their PAYE and VAT!

Posted by Paul McConville

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