Multinationals face £1bn swaps tax bill

In a landmark case, the Pru was appealing against a closure notice from HM
Revenue & Customs blocking its claim for a £105m tax deduction created by
the use of a tax-efficient off-market swaps scheme. The scheme would have
generated a £35m tax gain.

TOMS schemes looked to exploit legislation which allowed companies to claim
the premium paid on foreign exchange against tax.

According to HMRC director general Dave Hartnett, TOMS schemes, which were
used by approximately 30 large corporates, could have cost the exchequer up to
£1bn before they were blocked.

Special commissioners Sir Stephen Oliver and Theodore Wallace ruled against
the scheme, which the Pru bought from Ernst & Young for an upfront fee of
£200,000. A further £300,000 fee would have been payable if it had been

The commissioners said the deduction should not be allowed as avoidance was
the reason for the arrangement. They also ruled that the way the scheme was
structured meant the Pru should not have qualified for the deduction under the
legislation anyway, and should have spread them over a longer period.

The Pru intends to appeal.

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