General Electric accused of $1 billion tax fraud
In an astonishing turn of events HMRC have gone from praising General Electrics (GE) tax department to alleging that the company has committed tax fraud. In 2012 Will Morris, the companies director of tax policy was recognised for his role in “informing the public debate on large business and tax and condemning tax evasion and abusive tax arrangements with no commercial purpose”. HMRC are now demanding up to $1 billion in taxes, after accusing the US industrial giant of fraudulently misrepresenting the main purpose of transactions.
In what appears to be a landmark case, given this is the first time HMRC has accused a major company of engaging in fraudulent misrepresentation in order to gain a tax advantage, the repercussions of the case could encompass more than just GE. Slaughter and May, the law firm who advised GE on the deal in question, along with PWC who now employ a host of GE’s former tax team may also be affected by the result of this case.
The case boils back to 2005 when GE were engaged in discussions with HMRC for up to six months. GE and its lawyers, Slaughter and May, managed to convince HMRC to approve a tax deduction on transactions with an Australian subsidiary. The agreement meant that GE could circulate nearly $5 billion between the US, UK, Australia and Luxembourg.
From 2011 onwards, HMRC began accumulating information concerning this transaction with the Australian subsidiary. The detailed gathered painted a different picture to that which has been presented to them during the course of the discussions in 2005 accordingly to HMRC.
As a result HMRC are now alleging that during these talks GE misled them about the main purpose of the transactions in order for the US company to obtain a tax advantage. HMRC attorney Philip Jones was quoted in court as saying “This whole thing was set up as a tax scheme, to gain a tax advantage”
HMRC have asked the high court to annul the 2005 agreement, a decision that would make GE liable for up to 15 years of taxes, interest and penalties and would total more than $1 billion.
Following the latest court hearing on the 9 & 10th July, last Friday (31st July) Judge Zacaroli issued his verdict. Under the verdict HMRC are allowed to amend their lawsuit. Amendment may include claims of deliberate non-disclosure, fraud in respect of the Full Disclosure Representation, a claim that the Settlement Agreement is a contract of utmost good faith and the claim for breach of an implied term.
General Electric firmly deny the claims and began proceedings to counter-sued HMRC in an attempt to force HMRC to drop the case.