HMRC wins bulk of tax avoidance challenges but loses IHT case

Added 25th August 2017

HM Revenue & Customs claims that of the 26 litigation decisions in 2016/17 where tax avoidance was involved, 22 of them (86%) went in its favour.

HMRC wins bulk of tax avoidance challenges but loses IHT case

The UK tax authority lost three of the remaining decisions, while one was a mixed decision, where the High Court agreed with some of HMRC’s points but not others.

The number of case wins is very comparable to the previous year, 2015/16, when it won 23 (88%) of the 26 cases it contested.

The three cases in which HMRC was defeated were Salinger, which centered on the use of offshore trusts to reduce inheritance tax; Project Blue, involving a major stamp duty land tax avoidance scheme which is yet to be heard in the Supreme Court; and Investec Asset Finance a corporation tax dispute.

Another corporation tax case, Greene King, was the one which produced a mixed outcome.

Confirmed optimists

Heather Self, partner of international law firm Pinsent Masons, said "Anyone seeking to implement a complex tax avoidance scheme would have to be a confirmed optimist to assume they would win if the case is ultimately litigated.

"Furthermore, HMRC can also now rely on the General Anti-Abuse Rule (GAAR), which applies to transactions from 2013. The first ruling on the GAAR panel was released recently and was unanimously in favour of HMRC," she said.

The GAAR is designed to prevent 'artificial and abusive' tax avoidance schemes that fail to pass a 'double reasonableness' test, showing that the arrangements "cannot reasonably be regarded as a reasonable course of action".

Tax disputes can take many years to proceed through the courts and tribunal system, meaning that the cases finalised last year "give little clue to current behaviour by taxpayers", Self said.

Only one VAT case

For example, all the direct tax cases referred to relate to facts dating from 2003 to 2009, with the majority at least 10 years old before they reach the courts, she said.

"Of the decisions reported, there is only one VAT case – and that dates back to 1997! The long delay was caused by a need to refer to the Court of Justice of the EU (CJEU), but shows that VAT avoidance issues are now rare, especially following the leading 'Halifax' case in 2006. It takes a long time for the 'tail' to die out," she said.

Self said that, overall, the volume of cases resolved last year was not high: "This suggests that politicians' regular promises to collect billions more from 'stamping out avoidance' are unlikely to collect as much as they would think."

See the full list of cases and decisions for 2016/17 on page two

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Mark Battersby

Editor, International Adviser

International Adviser

Mark Battersby is editor of International Adviser. He is also programme director for International Adviser events in strategic expat locations around the world, and its flagship FundLinks conference in London. Mark joined Last Word Media in February 2012, having previously worked at Citywire, Interactive Investor International, and FT Business.

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