Rangers win big tax case as tribunal rules EBT payments were loans

Rangers have won a significant victory in their tax battle with HMRC with a tax tribunal ruling that payments made to some Rangers players through trusts were loans.

The three-person First Tier Tax Tribunal could not reach a unanimous decision on the club's use of Employee Benefit Trusts between 2001 and 2010.

It found most of the trusts were "valid" and loans are "recoverable" by the trust, although it conceded some advances to players were taxable and any bill is likely to be "substantially reduced" from the initial £46.2m assessment.

HMRC said it was disappointed and was considering an appeal.

It said: "We are disappointed that we have lost this stage of the court process and we are considering an appeal. The decision was not unanimnous and the diligence of HMRC investigators was acknowledged by the whole tribunal. HMRC is committed to tackling avoidance and it is right that we challenge the type of avoidance seen in this case."

A statement from the tribunal said: "This was a lengthy appeal, heard over 29 days and set down over an extended period. There was extensive reference to documentary productions and relevant case-law.

"At a late stage in its deliberations it became clear that the Tribunal would be unable to issue a unanimous decision. It is conscious of and regrets the consequent delay.

"The majority view reflects the argument that the controversial monies received by the employees were not paid to them as their absolute entitlement. The legal effect of the trust/loan structure is sufficient to preclude this. Thus the payments are loans, not earnings, and so are recoverable from the employee or his estate.

"The dissenting opinion adopts the approach set down by the decision of the House of Lords in Ramsay in 1981. By giving regard to the intentions of the parties entering the arrangements, and in the absence of commercial reality for the loan structure, the monies received by the employees via the trust constitute earnings for income tax purposes.

"At the request of Parties the Tribunal agreed to anonymise the published form of the decision."

Neil Patey, Ernst & Young, said: "By a majority of two to one, the tribunal has decided that the EBTs were loans and not taxable as remuneration so there is no additional tax to pay. Rangers have won the case."

A spokesperson for Sir David Murray, owner of the club through the period in question, said: “We are satisfied that the Tax Tribunal has now published its widely awaited decision and note the contents thereof.

"We are pleased with the judgement which leaves minimal tax liability and overwhelmingly supports the views collectively and consistently held by our advisers, legal counsel and MIH itself.

"This has been an exceptionally long, difficult and expensive process involving not just the Tax Tribunal but also significant efforts to resolve the matter with senior HMRC officials on a commercially sensible basis for all parties. We will therefore review the detailed content of the decision with our advisers and legal counsel to ascertain what action, if any, is now required by MIH.

"While MIH has at all times respected the privacy of the Tax Tribunal proceedings, a substantial quantity of confidential information relating to the case has become available for public consumption stimulating considerable discussion and often ill-informed debate. This has been wholly inappropriate and outwith the fundamental principles of natural justice.

"We therefore formally request that the relevant authorities investigate how these sensitive details have been released so widely. We have instructed our lawyers to retrospectively review online and printed publications relating to the case to identify whether legal redress is either appropriate or necessary."

Rangers had been found by HM Revenue and Customs (HMRC) to have breached tax rules through their use of employee benefit trusts (EBTs) to pay players and directors between 2001 and 2010.

The Ibrox club, then under the ownership of Sir David Murray, contested this, which resulted in the case being heard at the tribunal in Edinburgh.

Hearings in the tax case concluded in January, but its findings were not reached by the time the Ibrox club plunged into administration on February 14 this year.

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