Finance companies face higher court risks

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Banks, financial services companies and insurers have a far greater risk of ending up in court over tax disputes than other sectors, according to a survey that underlines the tensions between the government and its biggest taxpayers.

A third of high-profile cases pursued by Revenue & Customs over the past three years involved these sectors, according to Lovells, the law firm. The reasons these sectors are in the frontline include a reputation for aggressive planning and their exposure to the complexities of value-added tax.

Greg Sinfield, a partner, said the stakes had been raised by Revenue & Customs’ adoption of an uncompromising approach to litigation, in which it will no longer settle disputes if it believes it has a good chance of winning them.

He said: “What the survey makes clear is the issues on which Revenue & Customs are not prepared to settle are concentrated in a few key sectors, particularly banking, finance and insurance. This suggests such businesses are at a higher risk of litigation proceeding to a hearing than many other industry sectors.”

Revenue & Customs recently drew attention to aggressive tax planning by banks in a report it helped to write for the Organisation for Economic Co-operation and Development which said single deals could involve hundreds of millions of euros in tax savings.

The most frequent dispute between taxpayers and Revenue & Customs was the issue of whether a person was employed or self-employed. Other themes were the tax treatment of termination payments and schemes for reducing national insurance contributions, such as offering payments in kind to employees.

Even though the majority of tax disputes do not concern tax planning, Mr Sinfield said there were a significant number of cases involving capital gains and revenue tax planning. It cited as an example last year’s case involving Prudential’s claim for tax deductions of £105m ($205m) on certain tax-efficient off-market swap transactions.

Lovells said there were few cases involving cross-border flows of revenues by multinationals, even though a large amount of tax planning was involved.

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