The Inland Revenue may have to pay back hundreds of millions of pounds in tax

Posted by admin · · Jump to comments

The Inland Revenue may have to pay back hundreds of millions of pounds in tax to foreign companies after losing a key ruling in the European Court of Justice. The Revenue was sued by two German companies, Hoechst and Metallgesellschaft, over its handling of the tax on dividends paid by wholly owned subsidiaries to their parent companies.They argued the Revenue had discriminated against foreign companies by making them pay advance corporation tax (ACT) on dividends remitted to the parent. At that time, British companies did not have to pay this tax.This anomaly was removed in the 1999 Budget, although the changes prompted a completely different row. This led to large British multinationals, such as Vodafone, BAT and WPP, suggesting they might relocate abroad to reduce their tax bill.Hoechst, a chemicals group, and Metallgesellschaft, the engineering giant, claimed that their treatment by the Revenue was unfair, suing first in the UK courts and then in Europe.The victory, earlier this month, has opened the door to scores of other potential claims. Accountants KPMG and Ernst & Young said both had clients wanting to claim back tax, and the bills could run into the tens of millions.However, this may be just the tip of the iceberg.

While the ruling currently applies only to the European Union, accountants believe it will also affect companies from the US, Japan and elsewhere. This could double or even treble the amount of claims.The Revenue refused to comment on how much the ruling would cost it. To reduce the likely impact, it is hoping to go back to the High Court."The legal battle is not over," said a Revenue spokeswoman, "so we cannot say how much this will affect us.". Seventeen offshore banks were struck off by the Grenadan government last week as part of the continuing efforts to improve the tarnished image of the Caribbean offshore tax haven. Seventeen offshore banks were struck off by the Grenadan government last week as part of the continuing efforts to improve the tarnished image of the Caribbean offshore tax haven. A number of the banks have been at the centre of fraud or corruption allegations. The island's national newspaper, Grenada Today, reports that four more banks, suspected of fraud, will shortly have their licences revoked.Among those affected are the First International Bank of Grenada (FIBG) and some of its subsidiary banks. FIBG, which has been extensively covered by the Independent on Sunday recently, was originally licensed solely on the capital asset of a red ruby, said to be worth $20m (£13m).

But FIBG has now been taken over by the Grenada authorities and liquidated after years of repeated allegations of fraud.Several other banks which have been struck off have been at the centre of fraud allegations. The 21st Century Banking Group was closed down after the US Securities & Exchange Commission (SEC) froze the bank's assets. In a lawsuit filed at the US District Court for the Southern District of Indiana, the SEC has accused six defendants of defrauding 330 investors out of $29.1m raised since January, 1998.Defendants include Kenneth R Payne, 51; Daniel G Danker, 52; Johann M Smith, 42; Constance Brooks-Kiefer, 47; JMS Investment Group and Heartland Financial Services.Mr Payne and Mr Danker are disbarred attorneys, while both Heartland Financial and JMS allegedly operated as stockbrokers without being licensed by the SEC.In an unrelated case, the US authorities last week arrested British-born David Frank Rowe and American Gerard Michael, who have been principals of the Grenada registered Cambridge International Bank & Trust (CIBT) - which is still licensed to operate on the island. They are being held without bail.Their arrest follows the filing of a criminal complaint at the US District Court for the Northern District of California (San Jose) on March 6, 2001 in relation to their activities at CIBT.Grenada's close examination of its offshore banking operations is taking place against the backdrop of criticism by the Organisation for Economic Co-operation in Development (OECD) of some Caribbean nations as tax havens and unco-operative domiciles in the fight against money laundering.Grenada, with over 3,000 banks, has been viewed as a money-laundering paradise. The government, in conjunction with the island's police force, has now taken tentative steps towards resolving the problem.A senior Grenadan financial investigator told the Independent on Sunday: "In the light of all the shady dealing that seems to have pervaded the island recently, Grenada International Financial Services Authority (GIFSA) has been set up. We already have a Supervisory Authority in place." He added: "The island's police and the government officials have put their heads together and want to set up a Financial Investigation Unit, in which I will be personally involved. As yet, this initiative is still in the planning stages, so I am waiting to see what happens.".