General Electric has won a key legal victory in its battle with the UK's tax authority, HM Revenue & Customs (HMRC) which had accused the US industrial giant of "fraudulently" underpaying taxes amounting to around $1 billion (€830 million).
Royal Courts of Justice, London. Source: Anthony Majanlahti / Flickr
The Royal Courts of Justice in London. Source: Anthony Majanlahti / Flickr
In 2018, HMRC requested that the UK High Court annul the tax agreement it made with GE in 2005, arguing that the firm had failed to disclose important information relevant to the deal. It aimed for 15 years worth of taxes, plus interest and fines - more than $1 billion in total.
Usually, such claims are subject to a limitation of six years, but HMRC said the time limit did not apply because GE had made a "fraudulent misrepresentation". In July last year, the High Court ruled that HMRC could pursue this argument against the US company.
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The High Court ruling, however, has now been overturned by the Court of Appeal, which found in GE's favour. It ruled that the six-year limitation period does apply to fraudulent misrepresentation, meaning HMRC can no longer pursue the fraud claim over the 2005 deal. The court said that the contract between the two was binding like any other.
"Having decided to go down [a] contractual route, rather than rely on their tax-gathering powers, the rights and obligations of HMRC under the settlement agreement then sounded in contract, not in tax law," said Lord Justice Henderson
The 2005 deal from which the case stems was an agreement between HMRC and GE whereby the company was able to persuade the tax authority to approve a tax deduction on a transaction. This meant that GE was then able to circulate billions of dollars between the UK, US and Australia without breaking any recently-enacted anti-arbitrage tax laws.
Lord Justice Henderson was unimpressed with some of the HMRC legal team's arguments, saying that "written submissions, would provide interesting raw material for several academic seminars or journal articles, but they do not impinge except peripherally on the task in hand."
GE welcomed the court's decision, saying that it "complies with all applicable tax laws in every country where we do business, and we reject the UK tax authority’s allegations and are vigorously contesting these false claims."
HMRC did not divulge whether or not it would take the case to the UK Supreme Court, saying it was not able to comment on potentially ongoing litigation.
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"We make sure every taxpayer, no matter what their size, pays everything they owe under UK law," HMRC said. "In 2018/19 we brought in an additional £10 billion (€11.5 billion) from the UK’s largest businesses. This is money that goes to fund our vital public services, like the NHS."
The court has ordered HMRC to pay an upfront sum of £550,000 (€632,500) to GE to reimburse its costs.
In recent years, following some high profile cases in the media, such as Amazon, Starbucks, and Google, as well as the publication of the Panama Papers in 2016, the UK tax authority has been trying to get tougher in complex tax avoidance disputes, especially those involving large businesses and wealthy individuals.
- Read the full ruling by the Court of Appeal.
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