A £45m tax avoidance scheme operated by Abbey National Treasury Services has been shut down after an HM Revenue & Customs challenge.
The first-tier tribunal’s ruling will protect over £45m tax from Abbey – a subsidiary of Santander – as well as another £40m in a second case that will be decided by this ruling.
The scheme involved Abbey National Treasury Services distributing profits from ‘swaps’ to its parent company Abbey National, using accounting practices to claim an accounting debit as a tax deductible loss in Abbey National Treasury Services without a matching taxable receipt in Abbey National.
The scheme then saw the issue of shares by Abbey National Treasury Services to the parent company. The shares had specific rights that entitled the parent company to receive dividends of an amount equal to certain cash flows receivable from specified swaps, held by Abbey National Treasury Services.
On issuing the shares, Abbey National Treasury Services “de-recognised” £160m from the accounting value of the relevant swaps and recognised a corresponding £160m dividends debit, which it claimed as a tax deductible loss in its corporation tax return. The dividends were not taxable income in the hands of the parent company.
HMRC agreed with the accounting treatment but disagreed that the debit fairly represented a loss, something the tribunal upheld.
The ruling follows a similar case involving Abbey National and Carter Allen International – also part of the Santander Group – in June, which protected £16m for the public purse.
HMRC director-general for business tax Jim Harra (pictured) said: “HMRC has again protected a significant amount of tax revenue, and we will continue to tackle aggressive tax avoidance schemes.
“This win shows that any business, irrespective of size, that promotes or uses tax avoidance schemes can expect to be challenged by HMRC. Where necessary, we will take them through the courts to protect tax revenue.”
A spokesman for Santander said: These transactions, and the payment of tax due, was considered appropriate under Abbey National’s interpretation of the relevant tax law at the time.
“The litigation centred on the tax treatment the bank applied to two transactions and involved a technical debate with HM Revenue & Customs (“HMRC”) about the interpretation of complex legislation.”
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He added Santander is “respectful” of the ruling an has no intention of appealing.