Generally speaking, the legal case was related to a tax scheme promoted by financial services firm Deloitte. It exploited a certain loophole in UK’s tax code, concerned with loans taxation. The relevant regulation was amended and strengthened in 2009.
Under the above-mentioned scheme, two businesses owned by Ladbrokes – Ladbrokes International and Travel Document Service inked special agreements to create an artificial fall in the share value of one company, which then led to loss in the second company for tax avoiding purposes. In fact, Ladbrokes did not suffer any actual economic loss.
HM Revenue & Customs was the other party in the legal battle. Commenting on the tribunal’s ruling, it pointed out that Ladbrokes had breached the existing regulations by seeking the tax advantage. HMRC also pointed out that there were a total of 11 business entities that took advantage of the scheme, prior to the relevant regulation being amended in 2009. Seven of the companies conceded right before the tribunal hearing and paid their taxes. The other three are facing court cases similar to the Ladbrokes one and are worth a total of £112 million in tax.
HMRC Director General of Business Tax Jim Harra pointed out that so far, they have won almost 80% of the court cases taxpayers have litigated. What is more, some of the taxpayers have actually decide to concede right before litigation. Mr. Harra further noted that they are determined to continue uncovering avoidance schemes and related contrived structures for tax minimization and that they will challenge those in court.
Commenting on the tribunal ruling, Ladbrokes said that they believed they had “a strong argument”in court. The gambling operator is currently considering the opportunity to appeal the decision.
The tribunal decision comes shortly after Ladbrokes shareholder voted in favor of the proposed £2.3-billion mergerwith rival gambling operator Gala Coral. The deal is now subject to regulatory approval and if given the green light, it would result in the creation of UK’s biggest chain of betting shops. The merger is likely to be completed sometime in 2016.
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