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Wednesday, 26 February

Stamp Duty Case Stamped On

 

According to The Guardian, HMRC has been knocked back in its attempt to recover £50 million in Stamp Duty pertaining to the £959 Million sale of Chelsea Barracks for domestic property development.

Having unanimously won its original case and appeal, HMRC was confident there was no chance of the decision being overruled - until a more recent ruling that HMRC had pursued the wrong party.

The Guardian quotes Richard Murphy a director of Tax Research UK, as saying: “This needs to be a serious kicking for the people involved, including the senior management of HMRC. We cannot run a tax authority on the cheap.”

A statement obtained by ThisWeekinFM from HMRC reads: 'The court of appeal ruling supports our view that SDLT [stamp duty land tax] is payable. We are disappointed that the decision makes that tax much harder to collect so we are considering an appeal.

'Four Tribunal judges thought that we were assessing the right taxpayer but the court of appeal has disagreed. This was a complicated legal point and we are considering the implications.

'HMRC is proud of our record of winning most avoidance cases that are taken to litigation by the taxpayer and we protected over £1 Billion in April alone. We tackle avoidance wherever we see it and litigate where necessary to ensure schemes are defeated and the tax due is paid'.

 

Original ruling

The Upper (Tax) Tribunal originally upheld a legal ruling against a the SDLT avoidance scheme. Scheme user, Project Blue Ltd, had appealed against an earlier First Tier Tribunal (FTT) decision relating to its purchase of the Chelsea Barracks in London. It was deemed the SDLT sub-sale alternative finance scheme was used in an attempt to eliminate all of the SDLT due on the purchase of the barracks. The Upper Tribunal decided Project Blue must pay £38 million in SDLT that would have been due if it hadn’t used the scheme.

 

Case law

The decision also affected 24 similar commercial cases and similar avoidance schemes with around 900 users, valued at £85 million in tax. The case was the first to test a targeted anti-avoidance rule in the SDLT legislation.

 

David Gauke, Financial Secretary to the Treasury, said at the time: “HMRC’s position in this important case has now been backed twice by the courts. The message is clear – tax avoidance is complex, expensive and self-defeating. We continue to crack down on both avoidance and evasion – last year HMRC’s compliance activity brought in £23.9 billion.”

 

Events

Chelsea Barracks was sold to Project Blue Ltd in January 2008 when the company was owned jointly by the Qatari Government and CPC Group. The company is now solely owned by the Qatari Government. The SDLT legislation removes tax obstacles to alternative property finance transactions (which includes Islamic finance transactions) to ensure that they aren’t taxed more than conventional loans. In this case, the transactions were combined with others in a complex tax avoidance scheme designed to ensure that no tax was payable at all.

Project Blue Ltd argued that the transactions had been carried out for commercial reasons and not to avoid tax.

 

Caught out

According to The Guardian: 'Project Blue, a company owned by Qatar’s sovereign wealth fund, the Qatar Investment Authority, used an instrument called an ijara. It works as a leasing arrangement to comply with Islamic law, which forbids the charging of interest. That meant Qatar’s Masraf al-Rayan bank was the formal owner of the property.

'Lord Justice Lewison said in the judgment that under an ijara arrangement, a bank or other financial institution buys the asset that the customer wishes to acquire and then leases that asset to him. The rent is calculated in such a way that the bank will receive a return on its investment. The customer will also have an option to buy the asset. However, it is critical to appreciate that the bank will be the real owner of the asset for the term of the lease and the customer will not'.

The Guardian article also revealed: ' The Qatar Investment Authority has interests in a raft of prime properties in London, with stakes in the Shard and the Canary Wharf estate. It is also the largest shareholder in Sainsbury’s and has a significant stake in Barclays, which it helped avoid a government bailout in the wake of the financial crash.'

Picture: Tax your lot - HMRC is considering a further appeal on the Chelsea Barracks ruling

Want to read the most recent ruling - Click Here

Article written by Brian Shillibeer

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