The company transferred a swap contract to another Bank of Ireland subsidiary in a flawed attempt to exploit what it thought was a loophole in the tax rules.
The bank’s theory was that the £30 million tax would disappear on the cancellation of the original contract and its replacement with a new one. It entered into a swap transaction for commercial hedging reasons, but decided to transfer the swap to another Bank of Ireland subsidiary to exploit a perceived weakness in rules on the taxation of swaps in Finance Act 2002. The Tribunal in March upheld HMRC’s view that there is in fact no loophole to exploit.
The Exchequer Secretary, David Gauke, said:
The vast majority of businesses and individuals pay the tax they owe. The additional resources that we have made available to HMRC are helping to ensure the minority cannot avoid their responsibilities. HMRC will challenge avoidance schemes that risk denying the Exchequer vital tax revenues and will pursue to litigation when necessary.
The theory underlying the novated swap transaction was that the taxable gain which had accrued to the transferor would disappear, because one of the companies involved in the swap was within the new regime while the other was not.
The Tribunal decision can be found at financeandtaxtribunals.gov.uk/judgmentfiles/j7141/TC02630.pdf
In Budget 2013, the Government published the document Levelling the Tax Playing Field, setting out the progress that has been made in the drive against tax avoidance.
Six corporate tax loopholes were closed by Budget 2013, protecting over £1 billion in revenue and yielding over £500 million.
Since 2010 HMRC has won more than 50 tax avoidance cases, protecting billions of pounds.