high court

TaxWatch challenges HMRC over “sweetheart” deal with GE

6th December 2021 by George Turner

TaxWatch has launched the first stage of legal proceedings against HMRC over their decision to settle a billion pound tax fraud dispute with GE.

On 15th September it was reported that GE had reached a settlement with HMRC over a dispute involving a tax avoidance scheme that the company operated between 2004 and 2015.^[1]TaxWatch calls for scrutiny over “sweetheart” tax deal between HMRC and GE, TaxWatch, 23 September 2021, http://13.40.187.124/ge_sweetheart_tax_deal/

GE had previously disclosed that were HMRC to be successful, they would be liable to pay an additional $1.1 billion in tax, before the calculation of interest and penalties. When announcing the settlement, GE disclosed that HMRC had settled for no current tax payment and GE accepting a deferred tax liability of $112 million or just 10% of potential impact that GE had disclosed.

HMRC cleared GE’s use of the scheme in 2005, on the basis that the main purpose of the arrangement was to gain a tax advantage in Australia and not the UK.

However, from 2011 HMRC received disclosures from the Australian Tax Authority which they said demonstrated GE had told the Australian Tax Office that the main purpose of the scheme was in fact to gain a tax advantage in the UK.

In 2018, HMRC is purported to have rescinded the agreement they reached with GE in 2005 on the grounds that GE obtained it by misrepresentation and concealment of material facts, and issued proceedings in the High Court seeking a declaration that the agreement had been validly rescinded.

In 2019, HMRC sought to amend their claim to state that GE made the misrepresentation and concealment fraudulently. The High Court granted the amendment but the Court of Appeal ruled that HMRC had waited too long before making the fraud allegations.

HMRC had applied for permission to appeal to the Supreme Court, and TaxWatch submitted arguments in support. The Supreme Court agreed to hear the case, but HMRC settled with GE before it could be considered by the Court. ^[2]GE Tax Fraud Case to be heard by Supreme Court, TaxWatch, 28 July 2021, http://13.40.187.124/ge-tax-fraud-case-to-be-heard-by-supreme-court/

This left in place a precedent of the Court of Appeal which limits the ability of HMRC and indeed all victims of fraud to get out of contracts which had been secured by fraudulent means.

TaxWatch maintains that given the allegations of fraud made by HMRC, the department should have initiated a criminal investigation under their criminal investigations policy. Instead, HMRC exonerated GE from any wrongdoing in its settlement without any investigation taking place under the criminal law.

TaxWatch has now sent HMRC a letter before the claim inviting the department to rescind the settlement agreement with GE by 08 December. If HMRC fails to take action, TaxWatch will consider launching a judicial review of the settlement.

Commenting, George Turner, Executive Director of TaxWatch stated:

“Given HMRC’s allegations of fraudulent misrepresentation, the public would expect criminal proceedings to be opened. Particularly given the large amounts of money at stake and the very high profile of the company and individuals involved.

“Instead, GE have been exonerated by an executive decision from HMRC, without the allegations being put before a court.

“The settlement with GE represents one of the largest settlements in favour of a multinational company that has emerged in recent years.

“It is vital that the department fully accounts for reasons behind their decision, which has seen them give up on over £1bn in taxation.”

References[+]

References
↑1	TaxWatch calls for scrutiny over “sweetheart” tax deal between HMRC and GE, TaxWatch, 23 September 2021, http://13.40.187.124/ge_sweetheart_tax_deal/
↑2	GE Tax Fraud Case to be heard by Supreme Court, TaxWatch, 28 July 2021, http://13.40.187.124/ge-tax-fraud-case-to-be-heard-by-supreme-court/

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.