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Monthly Archives: May 2021

The Deloitte Disaggregation

27th May 2021 by Alex Dunnagan

Sports Direct worked with big four accountancy firm Deloitte on a VAT scheme that has led to litigation in several European countries.

The findings have emerged in High Court papers lodged as part of an ongoing case brought by the Financial Reporting Council against Frasers Group, formerly Sports Direct International Plc.

TaxWatch has published a report, ‘The Deloitte Disaggregation‘, setting out the case.

The scheme involved contracting out deliveries to a company set up by Mike Ashley’s brother, which had no vehicles or drivers.

Grant Thornton did not disclose this relationship in company accounts and have since quit as Sports Direct’s auditors.

A number of European countries are known to be concerned about the scheme with the potential losses to tax authorities likely to be very significant, perhaps running into the billions.

The case illustrates again how, despite claims to the contrary, leading elements of the tax industry remained in the business of designing and marketing complex tax avoidance schemes.

TaxWatch intervenes in GE tax fraud case

21st May 2021 by Alex Dunnagan
  • HMRC have filed an appeal to the Supreme Court seeking permission to make allegations of fraud in relation to an ongoing dispute with General Electric over a massive tax avoidance scheme.
  • TaxWatch has made submissions supporting HMRC’s application.
  • Should HMRC’s appeal be successful, then this would be the first time a major multinational corporation will have been forced to answer allegations of tax fraud in relation to an avoidance scheme in a public court in the UK.
  • TaxWatch’s submissions argue that there is no time limit on making allegations of fraud in relation to agreements reached between HMRC and companies like GE in relation to taxes.
  • Total value of taxes, penalties and fines HMRC is seeking from GE is worth over $1bn

TaxWatch has taken the preliminary step to intervene in a Supreme Court case between HMRC and General Electric (GE) as part of our Tax and the Rule of Law project.

The case involves a dispute between HMRC and GE on whether HMRC is allowed to rescind an agreement with the US-headquartered multinational due to an alleged fraud committed by GE.

The agreement meant that HMRC would not apply anti-avoidance rules to a set of financial transactions entered into by UK based subsidiaries of GE, on the basis of reassurances granted by the company that the transactions were genuine commercial transactions and not part of an avoidance scheme.

However, HMRC now allege that employees of GE fraudulently misrepresented the true nature of the transactions to HMRC and knowingly withheld information that would have revealed details of the avoidance scheme.

The tax authority is now seeking to rescind the agreement and apply the anti-avoidance rules to the transactions. GE have stated in their accounts that if HMRC prevail in their arguments it would be liable for “approximately $1 billion… not including interest and penalties.”

Last month, HMRC suffered a set-back in their case when the Court of Appeal found that the tax authority had run out of time to bring their claim under the Limitation Act 1980. HMRC have applied to the Supreme Court for permission to appeal the decision of the Court of Appeal.

TaxWatch’s submission argues that the Limitation Act excludes the recovery of taxes from time limits imposed under the act, meaning that HMRC is not prevented from bringing a claim based on an allegation of fraud in this case.

If accepted, TaxWatch’s arguments have wider significance as HMRC frequently enter into agreements with multinational enterprises over tax.

If this appeal is successful, then the allegation of fraud levelled by HMRC against GE will be heard in an open court. It is thought that this would be the first time a major multinational corporation will have had to answer allegations of fraud regarding a tax avoidance scheme in a public court in the UK.

With a High Court hearing set for October 2021 on the substantive issue of whether HMRC can rescind the 2005 agreement and apply the anti-avoidance rules to the transactions, the case will be heard regardless of whether or not the allegation of fraud can be heard. However, without the fraud element HMRC’s chances of winning the case are weakened, putting at risk a huge sum of money.

Public interest interventions are common in various areas of law, such as human rights and environmental law. However, we believe that this is the first intervention made by an NGO concerning UK tax law.

The full written submission to the Supreme Court is available here.

Our previous report on General Electric, Around the World with $5bn, is available here.

Furlough fraud to cost up to £7bn – with no civil penalties issued yet

12th May 2021 by Alex Dunnagan

• Furlough fraud and error set to cost between £3.5bn and £7bn

• 5 known arrests for fraud so far concerning £5m in fraud

• No civil penalties have yet been issued for furlough fraud

• More investment required to tackle the scale of the problem

Furlough fraud and error is set to cost between £3.5bn and £7bn by the time the Coronavirus Job Retention Scheme (CJRS) ends in September 2021 a new estimate produced by TaxWatch has found.

Despite being aware of the scale of the problem, and making several high profile arrests, HMRC appear not to have issued any penalties for furlough fraud yet.

DWP estimates that £4.6bn per year is lost to benefits fraud and error. To tackle this, the Counter Fraud, Compliance and Debt (CFCD) Department of the DWP had approximately 8,000 staff in 2019. By comparison, this new Taxpayer Protection Taskforce sees 1,265 HMRC staff chasing up to £7bn of money lost to fraud and error lost from CJRS, while also having to deal with issues arising from the multitude of other Covid-19 schemes.

Read the full report here.


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