HMRC wins Versteegh case over complex tax avoidance

HMRC has beaten Versteegh, Commercial Estates Group and Westbury at the First Tier Tribunal (FTT) in a case involving a complex tax avoidance scheme which replaced interest on a loan between two companies in the same group with shares issued to a third entity.

This is the lead case appeal for groups which entered into a tax avoidance scheme designed to create a deduction in one group company for an intragroup loan without giving rise to taxable income in another. The lead appellant was Versteegh Ltd, the property developer and estate management company owned by Swedish multimillionaire Gerard Versteegh, represented by PwC Legal. The FTT accepted one of the arguments put forward by HMRC and this was enough to render the scheme ineffective.

The tribunal decided the scheme did not work and the company that received the shares had to pay tax.

HMRC's challenge to the avoidance scheme used by Commercial Estates Group, the Westbury group and other large groups has already collected £70m. A further £50m can now be collected as a result of the tribunal's decision.

Stephen Relf, corporate tax specialist at CCH, said: In this case, HMRC lost a number of battles but won the war: the fact that the share issue is taxable on the recipient renders the scheme ineffective. And this is an important victory for HMRC. This case is the lead appeal concerning a tax scheme used by a number of groups of companies and the tax at stake is likely to be significant.

'The section of the judgment dealing with the unallowable purposes rule is interesting. HMRC argued that the presence of a tax avoidance motive means that the unallowable purposes rule has to apply. This argument found little favour with the First-tier Tribunal: "The mere fact that tax informs the choice of transaction does not itself give rise to a necessary inference that the obtaining of a tax advantage was a main object or purpose." Each case must be judged on its facts.'

Welcoming the win, David Gauke, Treasury secretary, said: 'This tribunal decision is another blow to those who try to use complex schemes to get around the tax rules. This is the latest in a series of wins by HMRC against tax avoiders. Over £1bn has been protected in the first six months of 2013 and HMRC will continue to challenge schemes designed to beat the tax system.'

The case is Versteegh & Others v HMRC TC03026 [2013] UKFTT 642 (TC). HMRC was represented by Julian Ghosh QC and Elisabeth Wilson of Pump Court Tax. The judgment is available HERE

Be the first to vote

Rate this article

Related Articles