HMRC is seeking to reclaim some $1bn of tax from US industrial giant General Electric (GE), amid claims the company failed to disclose full details of financing arrangements in Australia, and was allegedly using an arbitrage scheme to gain a tax advantage
The development is discussed in a report published by investigative think-tank TaxWatch, which says ‘this appears to be the first time that HMRC has accused a major company of engaging in fraudulent misrepresentation in order to gain a tax advantage’.
The allegations revolve around the financing of certain GE companies in Australia, which the company routed via the UK in order to gain a tax advantage. In using UK companies as part of the transaction, GE required clearance from HMRC to ensure that they met UK tax rules. This was granted on a partial basis in 2005.
In documents before the High Court, seen by TaxWatch, HMRC alleges that approval for the transaction was only given on the understanding that the funds would be used to invest in businesses operating in Australia.
However, the tax authority later discovered that after leaving the UK for Australia the AUS$5bn used in the transaction was not invested in any business, but was moved between the US, Luxembourg, the UK and Australia before being sent back to the US later.
TaxWatch says the transactions had no commercial purpose other than to create a ‘triple dip’ tax advantage in the UK, the US and Australia.
HMRC’s claim is currently going through the legal process in the High Court, and the tax authority has stated it is unable to comment on ongoing litigation.
GE has stated it rejects the UK tax authority’s allegations and says it is ‘vigorously contesting these false claims.’
In a filing with the US regulator the Securities and Exchange Commission, GE said: ‘As previously disclosed, the UK tax authorities disallowed interest deductions claimed by GE Capital for the years 2007-2015 that could result in a potential impact of approximately $1bn, which includes a possible assessment of tax and reduction of deferred tax assets, not including interest and penalties.
‘We are contesting the disallowance.
‘We comply with all applicable tax laws and judicial doctrines of the UK and believe that the entire benefit is more likely than not to be sustained on its technical merits.’
The case in the High Court is set to go to trial in mid-2021.