TaxWatch challenges HMRC over “sweetheart” deal with GE

TaxWatch has launched the first stage of legal proceedings against HMRC over their decision to settle a billion pound tax fraud dispute with GE.

On 15th September it was reported that GE had reached a settlement with HMRC over a dispute involving a tax avoidance scheme that the company operated between 2004 and 2015.¹TaxWatch calls for scrutiny over “sweetheart” tax deal between HMRC and GE, TaxWatch, 23 September 2021, http://13.40.187.124/ge_sweetheart_tax_deal/

GE had previously disclosed that were HMRC to be successful, they would be liable to pay an additional $1.1 billion in tax, before the calculation of interest and penalties. When announcing the settlement, GE disclosed that HMRC had settled for no current tax payment and GE accepting a deferred tax liability of $112 million or just 10% of potential impact that GE had disclosed.

HMRC cleared GE’s use of the scheme in 2005, on the basis that the main purpose of the arrangement was to gain a tax advantage in Australia and not the UK.

However, from 2011 HMRC received disclosures from the Australian Tax Authority which they said demonstrated GE had told the Australian Tax Office that the main purpose of the scheme was in fact to gain a tax advantage in the UK.

In 2018, HMRC is purported to have rescinded the agreement they reached with GE in 2005 on the grounds that GE obtained it by misrepresentation and concealment of material facts, and issued proceedings in the High Court seeking a declaration that the agreement had been validly rescinded.

In 2019, HMRC sought to amend their claim to state that GE made the misrepresentation and concealment fraudulently. The High Court granted the amendment but the Court of Appeal ruled that HMRC had waited too long before making the fraud allegations.

HMRC had applied for permission to appeal to the Supreme Court, and TaxWatch submitted arguments in support. The Supreme Court agreed to hear the case, but HMRC settled with GE before it could be considered by the Court. ²GE Tax Fraud Case to be heard by Supreme Court, TaxWatch, 28 July 2021, http://13.40.187.124/ge-tax-fraud-case-to-be-heard-by-supreme-court/

This left in place a precedent of the Court of Appeal which limits the ability of HMRC and indeed all victims of fraud to get out of contracts which had been secured by fraudulent means.

TaxWatch maintains that given the allegations of fraud made by HMRC, the department should have initiated a criminal investigation under their criminal investigations policy. Instead, HMRC exonerated GE from any wrongdoing in its settlement without any investigation taking place under the criminal law.

TaxWatch has now sent HMRC a letter before the claim inviting the department to rescind the settlement agreement with GE by 08 December. If HMRC fails to take action, TaxWatch will consider launching a judicial review of the settlement.

Commenting, George Turner, Executive Director of TaxWatch stated:

“Given HMRC’s allegations of fraudulent misrepresentation, the public would expect criminal proceedings to be opened. Particularly given the large amounts of money at stake and the very high profile of the company and individuals involved.

“Instead, GE have been exonerated by an executive decision from HMRC, without the allegations being put before a court.

“The settlement with GE represents one of the largest settlements in favour of a multinational company that has emerged in recent years.

“It is vital that the department fully accounts for reasons behind their decision, which has seen them give up on over £1bn in taxation.”