(D)EBTS, Taxes and Rangers FC: The Advocate General for Scotland v Murray Group Holdings Ltd

Pages217-223
DOI10.3366/elr.2016.0344
Published date01 May 2016
Author
Date01 May 2016
INTRODUCTION

The legal fallout from the disintegration1 of Rangers FC2 continues. Civil3 law cases connected to events at Ibrox continue to provide lawyers with useful jurisprudence across a number of fields of private and public law.4 The decision in The Advocate General for Scotland v Murray Group Holdings Ltd 5 is concerned mainly with taxation, more particularly with the treatment of so-called “employee benefit trusts” (“EBTS”). The troubles at Rangers FC were caused by debts amounting to functional insolvency: the club's liabilities exceeded assets available to it and it was unable effectively to service its debts. A major creditor was Her Majesty's Revenue and Customs (“HMRC”) who pursued various corporate entities associated with Rangers FC for payment of income tax and National Insurance contributions. HMRC's interest in Rangers made it an important (and active) participant in the early stages of the disintegration, but by the time of the decision which forms the basis for this note the only respondent company actively contesting the appeal was RFC 2012 Plc. This respondent was formerly The Rangers Football Club Plc – often referred to in the popular press as “oldco Rangers” – and is not concerned with the current incarnation of Rangers FC as a footballing concern. Nevertheless, the liquidators dealing with RFC 2012 Plc contested the sizeable HMRC claim. In summary, HMRC's case was concerned with the proper tax treatment of EBTS that had been used by various entities in an attempt to avoid income tax liability on the part of employees. The Inner House decided that HMRC could recover income tax assessed on the basis of the trusts. To understand why, it is necessary to set out the facts and actors in some detail.

(D)EBTS AND TAXES

The respondents6 were all members of a group of companies known as the Murray Group of Companies by virtue of their shared parent company, Murray International Holdings Ltd. That group set up a scheme to avoid tax7 whereby Murray Group Management Ltd (“MGM Ltd”) created the Employees' Remuneration Trust8 (referred to as “the Principal Trust”9 ). Murray Group companies made payments to the Principal Trust to benefit their employees, recommending that the trustee of the Principal Trust should use the sum paid by the company with respect to an employee to create a subtrust. The subtrusts were (in practice10 ) structured so that the capital and income would be directed according to the employee's letter of wishes11 to his chosen beneficiaries, normally family members. The employee was made a protector12 of the subtrust, and the trustee of the subtrust would lend the sum of money (originally paid by the group company) forming the subtrust fund to the employee.13 Because the companies' advances of money to the Principal Trust were accompanied by mere recommendations, the First-tier Tribunal held14 (by a majority) that the decision to create subtrusts using the sums advanced was a genuine discretionary one. The benefits derived from them by employees and beneficiaries were not, therefore, earnings or emoluments amenable to income tax under the well-known “Ramsay principle”.15

The HMRC's appeal to the Upper Tribunal was dismissed.16 The Inner House held, accepting an argument advanced by HMRC on appeal that was not raised in the tribunals,17 that payments to the Principal Trust were subject to income tax...

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