Tax Avoidance – tax mitigation by companies & APNs

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Posted in:Banking and Finance, Litigation|May 3, 2016 | Join the mailing list

Much has been said about tax avoidance in the last month.  The Panama Papers led to David Cameron and Jeremy Corbyn releasing their tax returns.  Tony Blair’s former advisors have now released statements about Mr Blair’s tax affairs immediately after leaving office and a link to the head of HMRC allegedly giving Mr Blair advice on a “secret” trust used to minimise tax liabilities.

As has been discussed many times on this website, the coalition Government came in to power with a clear declaration that they were committed to tackling the rich and large companies from avoiding tax liabilities in the UK. The steps that followed suggested the Government would take practical action to implement this policy.

HMRC is re-examining all of the schemes registered as including a tax mitigation element or side-effect of how the scheme was set up and run.  In the Finance Act 2014 there was provision made for any mitigated or avoided tax benefits of such schemes would have to be paid to HMRC whilst HMRC investigated.

These are known as the Accelerated Payment Notice, the Partner Payment Notice and the Follower Notice.

However the one major issue that appears to have been overlooked is:

Which companies received financial aid during the economic collapse and what did they do in terms of tax mitigation?

Lloyds was allegedly pushed/bullied into acquiring HBOS.  The UK even waived competition rules to allow the acquisition.  HBOS had a £200 billion hole in the middle of its accounts.  The 2008 accounts for Lloyds showed it was insolvent.  A few days after RBS asked for a bail-out in October 2008 the CEO of Lloyds also asked for one.  Shareholders are now suing Lloyds, claiming that not enough (or any) due diligence was undertaken and, critically, Lloyds would not have needed a bail-out had it not acquired HBOS.  That final part of the claim seems quite apparent to those that have studied the collapse of HBOS [1] [2].

Lloyds was fined for LIBOR manipulation on 28 July 2014[3].  What is little known is that they were also fined for manipulating two other benchmarks – the Repo Rate and the SLS rate.  The SLS benchmark sets the “interest” element on the Special Liquidity Scheme.  When banks became insolvent many of them placed their most toxic assets in this scheme.  That would allow them to move their balance sheet back into positives, and if any serious losses occurred the Government would insure the losses.  Each bank paid a fee for this, the SLS rate.  Lloyds manipulated submissions so that they minimised the fees they had to pay to the Bank of England.

Lloyds is alleged to have admitted at its May 2013 shareholders’ meeting that it conducted business in tax havens “where the bank is not conducting genuine business…” [4]. It agreed to “pull out” of such tax havens [5].  The shareholders’ meeting heard that Lloyds was the “seventh biggest user of such facilities”.

This was not even the first time this issue had been raised.  In 2009 Lloyds faced a Panorama investigation into its use of Panama based tax avoidance[6].  Throughout 2009 Lloyds was criticised for having taken tax payers’ money and conducted business in an aggressive way to minimise its tax and its customers’ tax liabilities[7].

The issue that you must consider when looking at tax mitigation schemes that you are a party to is:

What is the primary mechanism of the scheme?

If the primary mechanism of the scheme is tax avoidance then it will quite often not be allowed, unless there is specific legislative allowance.  For instance, ISAs have now been with us since 1999, and now include savings accounts for buying your first home, children’s savings’ accounts and adult ISA Pension accounts and shareholding and/or dealership accounts.  They are allowed under the law.  Film production is specifically allowed under the law, but that legislation as then utilised by the larger accountants/audit companies to create schemes that required artificial methods in order to create a paper-based loss that would lead to tax off-setting, despite it being that no genuine loss had occurred.  These types of tax mitigation schemes are all, one by one, being denied by HMRC.  Those people that utilised them are now, years and even decades later, having to repay the tax benefits they received.

The above is what under-pins an APN/PPN/FN.  The Panama Papers issue is likely to lead to more political requirements to clamp down on tax mitigation.

HMRC and five other EU countries have issued reviews into tax avoidance.  Parliament is being pressured by the media to look at and tackle more tax avoidance.  HMRC has been unable to allocate significant resource so we cannot really expect prompt action and outcomes following investigation. Judicial reviews into the APN use under the Finance Act 2014 have to date been unsuccessful, but that does not mean that challenges to tax avoidance schemes in the future will also fail.  If you have received an APN/PPN/FN then please do contact berg’s litigation team to discuss your options.  The APN/PPN/FN is the start of the process, and most certainly not the end.

To download ’10 Top Tips on APNs’ click here.

Please also find more information on APNs from our various blogs and webpages here.

To find out more about the issues raised in this post, or to discuss any queries regarding tax avoidance get in touch with our Finance & Litigation team on or call +44 (0) 161 829 2599.
The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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