Author: Nicola Sharp 29 June 2021
Nicola Sharp of financial crime specialists Rahman Ravelli summarises the case.
A subsidiary of General Electric has failed in its attempt to avoid paying around £650 million in taxes.
The UK First-tier Tribunal tax court denied an appeal by GE Financial Investments (GEFI) that it should not have to pay the £650 million because it was entitled to a foreign tax credit in the US for 2003 to 2008. The Tribunal’s decision was a rejection of GEFI’s attempt to overturn a May 2017 finding by HM Revenue and Customs (HMRC).
The ruling, from Judge John Brooks, focused on whether a UK resident company with shares "stapled" to a US-based corporate group is liable to pay Britain's corporation tax. Stapled shares involve the stock of two companies that operate within the same corporate structure being publicly traded as if they are a single stock.
In June 2003, GEFI and its US counterpart created a limited partnership in Delaware to hold financial assets and make loans to businesses. The Tribunal considered whether a share staple between GEFI and US-based GE Financial Investments Inc effectively made the UK company an American resident during 2003-08 and, therefore, subject to the two countries' anti-double-taxation treaty.
HMRC argued that the British company should be taxed on its worldwide income, regardless of whether tax could be imposed on it in America under the treaty.
Judge Brooks said the case turned on questions of UK law rather than US law. He stated that he did not believe that GEFI was carrying on a business via a US permanent establishment during the relevant period. Due to this, he said, he did not conclude that GEFI should be paying tax in the US under US laws, which would have mean that its income was entitled to UK tax relief.
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