British taxman wins case against 'cynical' Bank of Ireland deal
Bank of Ireland has been accused of a "cynical attempt" to exploit a non-existent tax loophole after it lost a £27m tax avoidance case in the UK.
The case dates back to 2003 and involved a UK subsidiary, the former building society, Bristol & West (B&W).
HM Revenue & Customs (HMRC) said the avoidance scheme focused on corporation tax and sought to exploit the move from one piece of legislation to another.
Contracts moved from one subsidiary, Bristol & West, under old legislation, and were received by another subsidiary, Bank of Ireland Business Finance Limited, under new legislation in August 2003.
The UK tax authority sought to challenge the attempt to avoid tax, and the issue was appealed to the Court of Appeal, which has now ruled in favour of HMRC.
Jim Harra, HMRC's director general of business tax, said they would continue to pursue those who try to avoid paying tax bills.
"This was a cynical attempt to exploit a non-existent loophole to avoid paying tax. It has failed," Mr Harra said. "We will continue to investigate and pursue those who try to avoid paying their fair share on behalf of the majority who play by the rules, and pay the tax they owe."
In a statement, Bank of Ireland said it considers the decision "conclusive and definitive". It also said that it notes the fact that as it is an issue that dates back 12 years, the tax assessed has already been paid.
"The Group will not be pursuing a further appeal and is satisfied that the acknowledged legislative and procedural uncertainties have now been clarified," the bank said.
"The Group has signed up to the Code of Practice on Taxation of Banks and is fully compliant with its obligations under the Code."
HMRC said all parties agreed the transfer of the contracts was done solely to avoid tax, but the bank argued the scheme worked because the move from one piece of legislation to the other created a loophole. The judgment states that the issue centres around the appropriate corporation tax treatment of the novation of a portfolio of "in the money" interest-rate swaps to another company in the same group for a premium of £91m.
The novation occurred on August 29 2003. B&W submitted its tax return for that period on April 7, 2005. HMRC gave notice of its intention to enquire into the return on November 22 of that year.