HMRC wins £35 million tax avoidance case against global bank

HM Revenue & Customs (HMRC) has won a tax avoidance case worth £35 million against global banking group BNP Paribas.

The win came after the bank tried to use a tax avoidance scheme to claim an exemption from tax by generating an artificial loss on the purchase and sale of dividends without disposing of the underlying shares – a process known as ‘dividend stripping’.

The Tribunal confirmed HMRC’s view that legislation stopped financial tradersclaiming artificial losses by buying and selling dividends on shares and then claiming the sale proceeds are tax exempt.

Penny Ciniewicz, HMRC’s Director General Customer Compliance, said:

“Tax avoidance doesn’t pay. This decision adds to the comprehensive run of wins by HMRC in which the courts have found against the small minority of taxpayers who seek to avoid tax.

“Increasingly, companies and individuals who have tried to avoid tax are throwing in the towel and paying the tax they owe.”

HMRC’s latest annual report showed the tax authority brought in an additional £29 billion by cracking down on individuals and businesses who try to avoid or evade paying the tax they owe.

Notes to Editors

1. First-tier Tribunal Decision www.bailii.org/uk/cases/UKFTT/TC/2017/TC05941.html

2. HMRC’s view is that such schemes cannot succeed. To put the matter beyond doubt the legislation was amended by Finance Act 2006 tostop financial institutions and share dealers claiming wholly artificial losses by buying and selling the right to a dividend on shares and claiming that the sale proceeds are exempt from tax.

3. The legislation, repealed in 2009, had previously provided that, where the right has been bought and then sold on before receipt of the dividend, the proceeds of the sale were not regarded as income of the seller.

4. Scheme users had argued that this exemption applied to a financial trader who claimed to deduct the cost of the dividend in calculating its profits and losses for tax purposes. This would have had the effect that the financial trader made a loss for tax purposes equal to the cost of buying dividend rights.

5. HMRC’s action to tackle tax avoidance

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7. HMRC’s Flickr channel:http://www.flickr.com/hmrcgovuk