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  • Will latest challenge leave HMRC drowning its sorrows?

    15 May 2017

    These are testing and – quite literally – taxing times for anyone living or doing business in Britain.

    A few weeks ago, more than half of the 136 clauses in the largest-ever Finance Bill were removed in order to expedite the parliamentary passage of a slimline version before the General Election

    Whether some of the controversial measures jettisoned – including the need for businesses to file multiple digital tax returns each year – will return or have been permanently ditched remains to be seen.

    Nevertheless, the feeling that push and pull is the dominant dynamic of domestic taxation is not confined to Westminster.

    As my colleague Andy Wood remarked to national media and wrote on these pages back in March, judgement in a Supreme Court challenge to the liquidation of Rangers Football Club which came as part of HMRC’s clampdown on Employee Benefit Trusts (EBTs) could have significant implications for more industries than football.

    With all parties still dusting themselves down from a bruising two days of evidence which constituted the penultimate act of a long-running matter justifiably referred to as ‘The Big Case’ and five judges still deliberating their decisions in that case, HMRC’s decision to confront football with a series of high-profile raids on Premier League and Championship clubs could either be seen as bold and committed or high-risk.

    Its allegation of impropriety in that matter has been strongly denied by the teams involved and the investigation continues.

    Now, though, another prominent attack by HMRC is being repelled.

    It concerns an eye-watering £107 million demand issued to the multi-national drinks firm Diageo by the Revenue in relation to what it claims has been a shuffling of profits generated in the UK to the Netherlands in an attempt to avoid tax here

    The thrust follows the introduction in 2015 of something called the Diverted Profits Tax (DPT) regime which can request companies hand over 25 per cent of monies which HMRC reckons have been spirited out of the UK.

    Diageo has been ordered to hand over the cash before beginning talks with HMRC to resolve the dispute. However, it “does not believe” that it should be held liable.

    This is a clash which I and my colleagues at Enterprise Tax Consultants and elsewhere in the tax and legal professions had seen coming when the DPT first surfaced.

    As I’ve been telling International Tax Review, DPT was seen as a political instrument from its earliest days, originating as it did in the outrage arousing from media accounts of how global technology brands were able to sidestep apparent UK tax liabilities.

    That it was commonly regarded as contrary to EU law seemed not to bother the officials advancing the arrangements one jot. It remains to be seen whether such sensitivities are any more acute in this post-Brexit era.

    Nevertheless, HMRC has moved from one wealthy target (professional football) to another and one which is likely to be disinclined to simply roll over and cough up the cash.

    In addition, businesses receiving DPT bills are almost certainly possessed of deep enough pockets to be able to confront the Revenue head-on.

    If part of the rationale in mounting the kind of actions which generate substantial attention is creating sufficient headlines and anxiety as to ensure everyone pays their due taxes without dissent, there are risks attached, as highlighted recently on this ‘blog.

    The battle with Diageo is almost certainly going to be long drawn-out and bruising (or perhaps that should read ‘brew-sing’).

    Should the company win out – and there are many individuals who suggest that it could – the outcome could create the sort of headaches which might understandably drive those in charge at HMRC headquarters to drink.

     

     

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