Comment on the decision in RFC 2012 Plc (in liquidation) v Advocate General for Scotland [2017] UKSC 45

AuthorMarkos Phillips
PositionUniversity of Southampton
[2018] University of Southampton Student Law Review Vol.8
Comment on the decision in RFC 2012 Plc (in liquidation) v Advocate
General for Scotland [2017] UKSC 45
Markos Phillips
University of Southampton
n the Rangers1 case, the Supreme Court heard an appeal concerning whether a charge
to income tax was applicable to payments made by an employer into a trust, on behalf
of an employee. It considers the meaning of ‘earnings’ in relation to the income tax
statutes and reaches the conclusion that the payments made by the Rangers were ‘earnings’.
In this article, the reasoning of the Court will be discussed. The only judgement given in the
case, by Lord Hodge, reads seamlessly and reaches the only justifiable conclusion, but
perhaps for the wrong reasons. The decision also demonstrates how the courts have been
grappling to counteract aggressive tax avoidance schemes.
The Facts
In 2001, the Murray Group, a holding company for the Rangers Football Club (the
“Rangers”), set up a Principal Trust to benefit its employees. Whenever it sought to benefit
an employee, it would make a payment to the Principal Trust along with a recommendation
that the trustee resettle the sum on a sub-trust with the designated employee as the
protector. A protector of a trust is the grantee of various powers to enforce the trust
mechanism, such as the power to appoint or delete beneficiaries.2 While the Principal Trust
trustee had discretion over whether or not to apply the funds to the sub-trusts, on virtually
all occasions, the trustee accepted the recommendations of the Murray Group.
The arrangement benefitted all the parties involved. Employee earnings or ‘emoluments’ are
normally liable to a charge to income tax. Section 19 of the Income and Corporation Tax Act
(the “ICTA”)3 imposes a charge to tax ‘in respect of any office or employment on emoluments
therefrom’. However, the Rangers argued that the ‘payments’ to the Principal Trust were not
emoluments’ and therefore not liable to a charge to income tax. At the same time, the
Rangers claimed that payments to the Principal Trust were deductible from the Ranger’s
taxable profits. Section 74(1)(a) of ICTA4 allows a company to deduct expenses that are
‘wholly and exclusively for the purposes of the trade’ from their calculation of taxable profits.
By classifying the payments as expenses for the purposes of their trade, the Rangers were
able to reduce their taxable profits and subsequent Corporate tax liability. In achieving
efficiency on both ends of the transaction, the Rangers were able to offer players a much
higher net salary.
1 RFC 2012 Plc (in liquidation) (formerly The Rangers Football Club Plc) v Advocate General for Scotland
[2017] UKSC 45 (hereinafter RFC v AGS’).
2 Donovan Waters, ‘The Protector: New Wine On Old Bottles?’ Trends in Contemporary Trust Law (OUP
1997) 63.
3 Income and Corporations Tax Act 1988 (hereinafter ‘ICTA 1988’), s 19(1). This provision has since been
superseded by the Inco me Tax (Earnings and Pensions) Act 2003 (hereinafter ‘ITEPA 2003’), s 9, where the
term “emoluments” is replaced by “earnings”, defined in s 7. Since the Act is a rewrite of the 1988 legislation,
the substance remains the same.
4 This provision has since been superseded (for corporate bodies) by the Corporation Tax Act 2009, s 54. Again,
this Act comprises rewritten legislation, with no alteration to substance.

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