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Her Majesty’s Revenue and Customs (HMRC) announced today that a court tribunal had ruled in favor a £54 million tax-avoidance penalty assessed against London-based bookmaking giant Ladbrokes PLC. The tribunal’s decision reaffirms an HMRC ruling from last month that Ladbrokes had manipulated certain corporate stock holdings back in 2008 in order to create a paper loss in a manner forbidden under the UK’s Corporation Tax.
The scheme through which Laddies sought to create the £54M (EU €76.1 million or US $80.6 million) in tax-free revenue came about through the company’s attempt to use a short-term legal loophole that was created through amendments to the UK’s business code that year, though the code was quickly changed to close the unintentional loophole.
Nonetheless, Ladbrokes was one of a larger handful of major UK-based corporations that attempted to exploit the short-term loophole before its closure. A brief HMRC statement indicated that seven other UK companies (not necessarily gambling-related) had agreed to settlements and fines before reaching the tribunal-hearing stage. Three other unnamed companies remain scheduled for a similar hearing, for a collective £112 million in outstanding penalties.
According to British financial reports, the illicit transfer scheme was promoted by international accounting giant Deloitte (Deloitte Touche Tohmatsu Limited). Deloitte is one of the largest accounting services in Great Britain and has worked with Ladbrokes for years. It is not yet publicly known if all the companies targeted by HMRC were advised to create the manipulative paper transactions on the advice of Deloitte.
The scheme enacted by Ladbrokes and the other companies assessed fines by the HMRC included two companies under the same corporate umbrella. The two entities created an on-paper deal through which the companies did a large-scale stock swap, and then one of the companies artificially manufactured a stock-price drop by moving a large loan liability, created through a third entity, onto the corporate books. This produced a bogus tax write-off for the other company in the stock-swap deal, although no actual economic impact or business deal between the two actually occurred. The two Ladbrokes Group companies involved in the stock-swap and write-off scheme were Ladbroke Group International and Travel Document Service.
The forbidden paper-only business deal occurred long before the mega-merger between Laddies and Gala Coral announced earlier this year. That merger process is ongoing, and the announcement that the fine was upheld may have been largely expected in business circles, since Ladbrokes’ stock price remained virtually unchanged on the news. Ladbrokes is also a prominent sponsor across the European scene in support of its core sports-betting business.
Said HMRC’s Director General of Business Tax, Jim Harra, “Avoidance just doesn’t pay – we win around 80 per cent of cases taxpayers choose to litigate and many more concede before litigation. We will uncover the avoidance schemes and contrived structures designed to minimise tax and we will challenge them.” Today’s ruling means that Ladbrokes will be unable to recoup any tax benefits otherwise available through the illicit stock manipulation and accompanying tax write-off.
An unidentified Ladbrokes spokesman indicated that the company may continue to battle the judgment, even though Laddies willingly admitted in court testimony that the scheme had no other purpose than to generate the desired tax write-off. Speaking to Accounting Age, the Laddies exec offered, “We believed we had a strong argument in this case. We’re now considering our options with regards to a possible appeal.” Ladbrokes has not made an official corporate statement regarding today’s ruling, and representatives from accounting firm Deloitte have declined to comment.
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