The HM Revenue and Customs (HMRC) have recently won a major tax avoidance case against two US companies: Cargill and Goldman Sachs. The UK Court of Appeal have ordered the companies to pay back £74 million to the tax agency for taking part in a tax avoidance scheme.
The case involves a company GDF Suez Teeside Ltd. owned by Cargill and Goldman Sachs. Following the collapse of Enron in 2001, Cargill and Goldman Sachs had purchased the company that was previously known as Teeside Power Ltd.
Cargill and Goldman Sachs were found guilty of avoiding UK corporation tax on millions owed from Enron’s subsidiaries. They had set up another company in 2006 and converted the money owed into shares. This scheme was devised by Ernest & Young that was the firm’s auditor at the time.
The case went through both the First Tier and Upper Tier Tribunal. The Court of Appeal had recently ruled in favour of HMRC ordering the firms to pay pending taxes to the UK tax agency.
HMRC Emboldened After the Court Victory
After the decision made by the Court of Appeal, the director of Customer Compliance at HMRC made the statement that anyone who tries to gain an unfair tax advantage by exploiting the tax rules will fail. The company has dedicated expert professionals to address abuses of tax rules.
The managing partner of Milestone International Tax, Mr. Miles Dean has stated that this is how the tax disputes need to be settled in courts. The UK court system ensures that every case will be dealt equitably. The win rate of HMRC seems to be increasing, according to Mr. Dean. This is most probably due to a purposive approach that is now taken by the courts in evaluating tax avoidance cases.
Having said that, most cases involving HMRC end up badly for the tax agency. The reason for this is the aggressive stance taken by the tax body regarding IR35 reform. The fact is that the reform is highly flawed that causes great injustice to contractors. End users don’t always make correct judgements regarding contractors’ employment status. This has resulted in a lot of unfair judgements made against the contractors resulting in great financial difficulties.
While HMRC has deservedly won the million-pound case against the two US firms, it does not in any way strengthens its other cases. On the contrary, it shows that the past judgements against HMRC involving IR35 employment status were just and equitable due to the unbiased nature of the UK justice system.