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Bristol & West plc, owned by Bank of Ireland, has lost its second attempt to avoid £27 million of corporation tax by claiming that there was a loophole in the law governing the taxation of derivatives.
The Upper Tribunal said that Bristol & West transferred interest rate swaps to another Bank of Ireland subsidiary purely in the hope of securing a tax advantage. A further £215 million was protected when other followers of the plan settled before being taken to tribunal.
David Gauke, Exchequer Secretary to the Treasury, welcomed the outcome:
This case is the result of HMRC’s relentless work against a highly complex and speculative avoidance gamble that, unchallenged, would have deprived the country of over £27 million in corporation tax.
HMRC has shown that, no matter how complex or intricate the case is, it will not hesitate to litigate when the rules are being abused.
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Bristol & West transferred interest rate swaps from one group company to another for £91 million. They sought to take advantage of a change in the regime for taxing derivatives, wrongly believing the credit which had accrued to the transferor (profit) would disappear because one of the companies involved in the “in the money” interest rate swaps was within the new regime, while the other was not. The plan attempted to exploit this perceived asymmetry.
The Upper Tribunal allowed Bristol & West’s appeal on a point that was originally upheld in HM Revenue and Custom’s (HMRC) favour in the First Tier Tribunal, involving a closure notice mistakenly sent out. However, they agreed with HMRC that the perceived loophole did not exist and the scheme did not work, allowing HMRC to collect the tax due in subsequent years.
The Tribunal decision can be found here www.tribunals.gov.uk/financeandtax/Documents/decisions/Bristol-West-v-HMRC.pdf