Rangers EBT tax case did not work, Court of Session rules

HM REVENUE & CUSTOMS has claimed victory against Rangers FC after the Court of Session in Edinburgh ruled the Glasgow club’s use of Employee Benefit Trusts to pay players and staff did not work and is therefore taxable.

Last year, HMRC was defeated in an upper-tier tax tribunal that upheld a first-tier ruling in 2012 that the corporate entity which formerly housed Rangers, now in liquidation (oldco), had legitimately used the scheme between 2001 and 2010 to pay £47.65m to players and staff in tax-free loans.

The arrangement was challenged in the first-tier tribunal by HMRC, which said it did not work. Rangers disputed the bill and the tribunal held the payments were loans that can be repaid and, as such, were not taxable.

This latest ruling by three judges at the Court of Session upholds HMRC’s position and renders the EBT arrangement illegal.

The appeal was heard by Lord Carloway, sitting with Lord Menzies and Lord Drummond Young.

The judges ruled that if income was derived from an employee’s services, in their capacity as an employee, it was an emolument or earnings and “thus assessable to income tax”.

Delivering the opinion of the court, Lord Drummond Young said: “That accords with common sense. If the law were otherwise, an employee could readily avoid tax by redirecting income to members of his family to meet outgoings that he would normally pay: for example to a trust for his wife…or to trustees to pay for his children’s education or the outgoings on the family home… The funds are ultimately derived as consideration for the employee’s services, and on that basis they are properly to be considered emoluments or earnings.”

An HMRC spokesman said: “HMRC has a responsibility to make sure people pay what they owe and will always challenge tax arrangements where we do not think they work.

“As supported by the decision in this case, HMRC’s view is that Employment Benefit Trust avoidance schemes do not work. HMRC has collected over £1.3bn in tax through 1,500 users of similar schemes. HMRC will continue to settle appeals by agreement where appropriate but will if necessary continue to litigate cases where settlements cannot be agreed.”

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