Offshore win nets £365 million in billion pound week for HMRC

HMRC has protected £365 million in tax after defeating a tax avoidance scheme that involved dividends paid on shares to a company based in the Cayman Islands.

The First-tier Tribunal ruled that the Clavis Liberty Fund 1 LP scheme, created an artificial tax loss - in a judgment covering 99 partners and protecting tax at stake in other cases.

The judgment is significant for HMRC as it is the first time that this particular anti-avoidance legislation has been tested in court.

Jennie Granger, Director General of Enforcement and Compliance, HM Revenue and Customs, said:

“This is an important success for HMRC both in terms of the money that it will bring in, and the powerful signal it sends to anyone who might be tempted to use any form of offshore arrangement to avoid paying the tax that is due.

“In the space of a week HMRC has secured three court victories, protecting more than £1billion in tax and proving that tax avoidance doesn’t pay. It’s time for people to get out of these schemes – they don’t work and we will defeat them.”

The scheme itself involved a limited partnership, registered in Jersey and claiming to carry out UK trade. Each of the 99 users of the scheme contributed a sum, which was used, together with a large bank loan, to acquire rights to dividends declared by a Cayman-registered company.

The partnership claimed a deduction for the cost of the dividend rights but sought to exclude the dividend payments paid from its trading profits, giving rise to a loss.

The win at the First-tier Tribunal follows last week’s decision by the Supreme Court to refuse permission for Eclipse Film Partners No. (35) LLP to appeal against a Court of Appeal ruling, which protected £635 million in tax, and HMRC’s win against Fidex Ltd at the Court of Appeal, which protected a further £18 million in tax.

Notes to editors:

1.The tax at stake in this case is £18m, and a further £347 million across similar cases

2.First-tier Tribunal decision has now been published: http://www.financeandtaxtribunals.gov.uk/Aspx/view.aspx?id=9009

3.Eclipse 35 protected £635 million in total – our press release on this can be seen here: http://www.mynewsdesk.com/uk/hm-revenue-customs-hmrc/pressreleases/hmrc-wins-ps635-million-for-the-public-in-landmark-case-against-eclipse-35-avoidance-scheme-1373418

4.Follow HMRC Press Office on Twitter @HMRCpressoffice.

5.HMRC's Flickr channel: https://www.flickr.com/photos/hmrcgovuk.