HM Revenue and Customs (HMRC) said on Friday it had protected £365m ($524m, €465m) in tax after defeating the tax avoidance scheme that involved dividends paid on shares to a company based in the Cayman Islands.
“The First-tier Tribunal ruled that the Clavis Liberty Fund 1 LP scheme, created an artificial tax loss, (in a) judgment covering 99 partners and protecting tax at stake in other cases,” it said.
The victory follows last week’s decision by the Supreme Court to refuse permission for Eclipse Film Partners No. (35) LLP to appeal against a Court of Appeal ruling, which protected £635 million in tax, and HMRC’s win against Fidex, a subsidiary of BNP Paribas, at the Court of Appeal, which protected a further £18m in tax.
The latest judgment was also significant for HMRC as it is the first time that this particular anti-avoidance legislation (Section 730 of the Income and Corporation Taxes Act 1988) had been tested in court.
Jennie Granger, director general of enforcement and compliance for HMRC, said: “This is an important success for HMRC both in terms of the money that it will bring in, and the powerful signal it sends to anyone who might be tempted to use any form of offshore arrangement to avoid paying the tax that is due.
“It’s time for people to get out of these schemes – they don’t work and we will defeat them.”
The Clavis Liberty Fund 1 LP scheme involved a limited partnership, registered in Jersey and claiming to carry out UK trade. Each of the 99 users of the scheme contributed a sum, which was used, together with a large bank loan, to acquire rights to dividends declared by a Cayman-registered company.
The partnership claimed a deduction for the cost of the dividend rights but sought to exclude the dividend payments paid from its trading profits, giving rise to a loss.