TaxAdministration‘Score-draw’ in landmark tax cases

'Score-draw' in landmark tax cases

One of the most eagerly awaited tax decisions of recent years resulted in a 'score-draw' between the Inland Revenue and the tax industry last week.

Link: Tax directors become more risk-averse

The Revenue was fighting Barclays Mercantile and Scottish Provident in two separate cases of what it saw as issues of tax avoidance, but the taxpayers saw as legitimate tax planning.

While Barclays emerged victorious from allegations that capital allowances on a £91m deal for a gas pipeline ‘lacked commercial reality’, Scottish Provident was defeated.

The case involved Citibank paying £30m for the right to purchase gilts, and Scottish Provident paying £10m for the right to buy the gilts at a higher price, but during the same time frame.

The arrangement led to Scottish Provident realising a £20m tax loss. It claimed the arrangement was commercially-based because there was a 10% chance of the arrangement not working, something the law lords threw out.

Bill Dodwell, a tax partner at Deloitte, said the Scottish Provident result meant that tax planners would have to consider the ‘purpose of the law’ far more and that it could give the Revenue more leeway to tackle tax avoidance structures going forward.

‘That will hit a number of schemes that work because they introduce a very low rate of it not working,’ said Dodwell.

John Whiting, tax partner at PricewaterhouseCoopers, described the result as a ‘score-draw’ saying that ‘a lot of companies, a lot of practices and a lot of Revenue officials were waiting on this’.

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