TaxPersonal TaxRevenue faces demerger tax challenge

Revenue faces demerger tax challenge

An Inland Revenue ruling, which tax experts fear could reduce the appeal of demergers like that reportedly being discussed by Allied Domecq, is to be challenged in the courts.

Cigarette manufacturer the Gallaher Group has revealed that it is locked in a #130m tax dispute over its claim for tax relief on interest due on borrowings to fund its 1997 demerger from US-based Fortune brands.

The Revenue’s refusal to grant relief is understood to have been on the grounds that the borrowings were not ‘for the purposes of trade’ but were to fund the reorganisation of the business prior to the demerger.

Finance director Philip Burchill said: ‘The Revenue’s decision is a nonsense.

We asked for clearance which we did not get and there has been no discussion since.’

The company incurred #945m worth of debt in the demerger and Burchill said that the interest would be ‘very substantial’. Its results published this week had been prepared on the basis that relief would be granted.

The challenge has the backing of legal and accounting experts including company auditor PricewaterhouseCoopers as well as Fortune. The US company has promised to indemnify Gallaher for 50% of the potential tax bill, up to a maximum of #65m.

The Revenue refused to discuss the details of the case, but a Big Five tax expert said it was the first time the issue had been raised publicly since the law on interest relief was changed in 1996. Companies planning a demerger will follow the case closely, he said.

Related Articles

Inheritance tax is 'unfit for modern society' and should be abolished, says think tank

Personal Tax Inheritance tax is 'unfit for modern society' and should be abolished, says think tank

3w Alia Shoaib, Reporter
Rent-a-room relief – the survey says…

Personal Tax Rent-a-room relief – the survey says…

2m Helen Thornley, ATT Technical Officer
What should the OTS prioritise in its review of inheritance tax?

Personal Tax What should the OTS prioritise in its review of inheritance tax?

4m Alia Shoaib, Reporter
LITRG urges government to consider tax changes in disability work plan

Administration LITRG urges government to consider tax changes in disability work plan

5m Lucy Skoulding, Reporter
HMRC appeal rejected in Tottenham Hotspur case

Administration HMRC appeal rejected in Tottenham Hotspur case

6m Emma Smith, Managing Editor
HMRC urged to clarify impact of income allowances on Self-Assessments

Personal Tax HMRC urged to clarify impact of income allowances on Self-Assessments

7m Alia Shoaib, Reporter
New trading allowance: simplicity, but not as we know it

Administration New trading allowance: simplicity, but not as we know it

8m Emma Rawson, ATT Technical Officer
Wealthy individuals could circumvent top tax rate rises

Personal Tax Wealthy individuals could circumvent top tax rate rises

9m Alia Shoaib, Reporter