The UK Court of Appeal has ruled against Bank of Ireland in its a long-running tax avoidance dispute with UK authorities over a £27 million (€34.3 million) tax bill relating to its subsidiary, Bristol & West.
In response, Bank of Ireland said the ruling Appeal was “conclusive and definitive” and it would not pursue any further appeals on the matter.
“The group will not be pursuing a further appeal and is satisfied that the acknowledged legislative and procedural uncertainties have now been clarified,” the bank said.
“The group notes this is an issue that dates back some 12 years and that the tax assessed has already been paid. The group have signed up to the Code of Practice on Taxation of Banks and is fully compliant with its obligations under the code.”
Commenting on the ruling, HM Revenue and Customs' (HMRC) director general of business tax, Jim Harra, said: "This was a cynical attempt to exploit a non-existent loophole to avoid paying tax. It has failed.
“We will continue to investigate and pursue those who try to avoid paying their fair share on behalf of the majority who play by the rules, and pay the tax they owe.”
The case goes back to August 2003 and relates to the corporate tax treatment of “in the money” interest rate swaps from B&W to Bank of Ireland Business Finance Ltd for a premium of £91 million.
HMRC challenged B&W’s attempt to avoid corporation tax. The matter was initially heard by two tribunals before HMRC took it to the court of appeal.
In its self-assessment corporation tax return for the year to the end of March 31st, 2004, B&W claimed the benefit of a disregard in relation to the £91 million premium.
HMRC informed the bank of its intention to enquire into the return in a notice dated November 22nd, 2005. There were also parallel enquiries into the tax returns of two other Bank of Ireland subsidiaries.
B&W’s failed in its appeals on this matter to both tribunals.
Separately, B&W also claimed that HMRC had issued a “closure notice”, which had the effect of disabling any challenge by the body to the disregard issue.
In October 2007, a HMRC official asked that closure notices be issued in respect of the two other Bank of Ireland subsidiaries. By mistake, a closure notice was also issued to B&W in relation to the premium payment.
On this matter, the upper tribunal agreed with Bank of Ireland, meaning that it was immune from the corporation tax liability.
HMRC then took its case to the court of appeal, which ruled in its favour on both the disregard issue and the closure notice.
