HMRC blows away Project Zephyr avoidance scheme

HMRC HAS CLAIMED a ‘significant victory’ in its battle between a BNP Paribas-held company over a multimillion pound tax avoidance scheme.

Fidex Ltd, a subsidiary of BNP Paribas, went to the Court of Appeal to challenge the legality of the revenue’s use of a hotly-disputed ‘anti-avoidance’ rule.

The court heard that Fidex’s ‘Project Zephyr’ scheme, involving synthetic sales of bonds, was designed to take advantage of different accounting standards governing when assets should be recognised.

The object of this scheme was to create a loss of around €84m (£66m), which would be available for group relief throughout the BNP Paribas group, including Fidex itself. HMRC claim the scheme had £17.2m of UK tax at stake.

‘Another important win’

In 2013 HMRC lost the case at the first-tier tribunal, but that decision was overturned in November 2014, with an upper-tier tribunal ruling that the deduction should be disallowed on the basis of unallowable purpose.

HMRC argued that Schedule 9 of the Finance Act 1996 applied so as to deny Fidex the benefit of the loss.

In March 2016 the Court of Appeal supported HMRC’s use of an ‘unallowable purpose test’, a rule brought in to stop companies using artificial avoidance schemes and block claims for millions in tax relief.

Fidex appealed this ruling but three appeal judges – Lady Justice Arden, Lord Justice Kitchin and Sir Stephen Richards unanimously dismissed the appeal and agreed that the tribunal had ‘come to the right conclusion’.

Jim Harra, HMRC’s director general, business tax, said: “This is another important win against tax avoidance.

“The scheme was being used by the subsidiary of a major bank to dodge tax and the Court of Appeal have confirmed that it doesn’t work.

“HMRC will always take on schemes like these on behalf of the vast majority of taxpayers who play by the rules and pay their share.”

Earlier this month HMRC won a Supreme Court battle against film tax avoidance scheme Eclipse 35, potentially costing its high-value clients, including former Manchester United manager Sir Alex Ferguson, thousands in legal fees.

BNP Paribas declined to comment.