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Tax tribunal exposes £14m avoidance trick by DP World Tax tribunal exposes £14m avoidance trick by DP World
(2 months later)
A complex and aggressive attempt to avoid UK tax on an international ports business controlled by the billionaire ruler of Dubai has been thrown out by a tax tribunal, which branded the scheme "an elaborate trick". The scheme would have secured £14m in tax relief. It was devised in 2004 by P&O, the ports business that was then independent and listed on the London stock exchange.A complex and aggressive attempt to avoid UK tax on an international ports business controlled by the billionaire ruler of Dubai has been thrown out by a tax tribunal, which branded the scheme "an elaborate trick". The scheme would have secured £14m in tax relief. It was devised in 2004 by P&O, the ports business that was then independent and listed on the London stock exchange.
Dubai-owned DP World, which acquired P&O in 2006 for £3.9m, had sought to appeal against the authorities' rejection of the scheme. However, the appeal was rejected yesterday, with the tribunal judge calling it "a scripted game of charades".Dubai-owned DP World, which acquired P&O in 2006 for £3.9m, had sought to appeal against the authorities' rejection of the scheme. However, the appeal was rejected yesterday, with the tribunal judge calling it "a scripted game of charades".
DP World is 80% owned by Dubai World, which is controlled by Sheikh Mohammed bin Rashid al-Maktoum, the prime minister of United Arab Emirates and monarch of Dubai.DP World is 80% owned by Dubai World, which is controlled by Sheikh Mohammed bin Rashid al-Maktoum, the prime minister of United Arab Emirates and monarch of Dubai.
David Gauke, the UK Treasury minister, welcomed the tribunal decision, saying: "I'm delighted that HMRC has successfully defeated this attempt by a major company to artificially reduce its tax bill by exploiting an extremely complex international financial structure. The government has made it very clear that we won't put up with aggressive tax avoidance, and we have resourced HMRC to take on even the most complex and convoluted schemes, as this tribunal decision shows."David Gauke, the UK Treasury minister, welcomed the tribunal decision, saying: "I'm delighted that HMRC has successfully defeated this attempt by a major company to artificially reduce its tax bill by exploiting an extremely complex international financial structure. The government has made it very clear that we won't put up with aggressive tax avoidance, and we have resourced HMRC to take on even the most complex and convoluted schemes, as this tribunal decision shows."
The chancellor George Osborne and some of his fellow G20 finance ministers will hold a press conference in Moscow to welcome a 15-point OECD plan for action to tackle the growing problem of tax avoidance by multinational businesses. The finance ministers have already said they want to tackle the issue of big business avoidance structures that are a drain on countries' tax receipts and allow larger firms to gain an unfair advantage over smaller competitors.The chancellor George Osborne and some of his fellow G20 finance ministers will hold a press conference in Moscow to welcome a 15-point OECD plan for action to tackle the growing problem of tax avoidance by multinational businesses. The finance ministers have already said they want to tackle the issue of big business avoidance structures that are a drain on countries' tax receipts and allow larger firms to gain an unfair advantage over smaller competitors.
The DP World tax avoidance plan – known as the "Dear Simon scheme" after a letter at the centre of the case – sought to exploit complex international treaty rules designed to facilitate global trade by making sure profits are not taxed twice in different jurisdictions.The DP World tax avoidance plan – known as the "Dear Simon scheme" after a letter at the centre of the case – sought to exploit complex international treaty rules designed to facilitate global trade by making sure profits are not taxed twice in different jurisdictions.
A flurry of transactions P&O orchestrated among UK and Australian subsidiaries in October 2004 sought to create a UK tax credit for foreign tax payments artificially. Such avoidance structures are known as "rate booster" schemes in the tax avoidance industry.A flurry of transactions P&O orchestrated among UK and Australian subsidiaries in October 2004 sought to create a UK tax credit for foreign tax payments artificially. Such avoidance structures are known as "rate booster" schemes in the tax avoidance industry.
"The Dear Simon scheme was designed and implemented for no reason other than tax avoidance," concluded Sir Stephen Oliver QC, the tribunal judge. "It depended on the alchemy of turning share capital into distributable reserves almost overnight. The trick was written into the script of the charade.""The Dear Simon scheme was designed and implemented for no reason other than tax avoidance," concluded Sir Stephen Oliver QC, the tribunal judge. "It depended on the alchemy of turning share capital into distributable reserves almost overnight. The trick was written into the script of the charade."
The "Dear Simon" letter, written by P&O's then group tax manager to accountants, noted that the group had accumulated significant cash in an Australian subsidiary. "The rate of underlying tax on the Australian profits is lower than might be expected," the letter said. It went on: "… in order to keep our options open, we propose to put in place now a structure which will enable POAL [P&O Australia Ltd] to receive a dividend from a UK company in the 2004 year, thereby enhancing the rate of tax which would underlie a dividend paid or payable by POAL this year."The "Dear Simon" letter, written by P&O's then group tax manager to accountants, noted that the group had accumulated significant cash in an Australian subsidiary. "The rate of underlying tax on the Australian profits is lower than might be expected," the letter said. It went on: "… in order to keep our options open, we propose to put in place now a structure which will enable POAL [P&O Australia Ltd] to receive a dividend from a UK company in the 2004 year, thereby enhancing the rate of tax which would underlie a dividend paid or payable by POAL this year."
DP World is 80% owned by the government of Dubai through its Dubai World investment conglomerate. Among DP World's major investment projects is the development of the London Gateway container ship port in Thurrock, Essex, which is due to open later this year. Dubai World is behind some of the most extravagant development projects ever dreamed up, including Palm Islands, the towering Burj Dubai and the Arab Sail hotel. Also among its breathtaking developments has been $5bn Dubailand project, a Disney-like enterprise encompassing an indoor ski slope and an animal safari and amusement rides. Dubai World suffered a debt crisis in 2009 which led to a restructuring two years later.DP World is 80% owned by the government of Dubai through its Dubai World investment conglomerate. Among DP World's major investment projects is the development of the London Gateway container ship port in Thurrock, Essex, which is due to open later this year. Dubai World is behind some of the most extravagant development projects ever dreamed up, including Palm Islands, the towering Burj Dubai and the Arab Sail hotel. Also among its breathtaking developments has been $5bn Dubailand project, a Disney-like enterprise encompassing an indoor ski slope and an animal safari and amusement rides. Dubai World suffered a debt crisis in 2009 which led to a restructuring two years later.
Sheikh Mohammed is best known in Britain for leading his family's ownership of the Godolphin Stables, near Newmarket. The stable has been at the centre of horse-doping allegations that have shocked the racing world.Sheikh Mohammed is best known in Britain for leading his family's ownership of the Godolphin Stables, near Newmarket. The stable has been at the centre of horse-doping allegations that have shocked the racing world.
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