NEARLY £50m paid by Rangers FC to star players and senior staff was paid into trusts simply 'to avoid tax', the Supreme Court has heard.
BDO, liquidators of the Rangers FC 'oldco' are appealing against the Court of Session in Edinburgh ruling that £47.65m in 'loans' to more than 80 players and staff in employee benefit trusts (EBTs) between 2001 and 2010 for the benefit of their families were actually disguised salary payments.
The seven-year saga, commonly known as the 'Big Tax Case', has has reached the highest appeal court in the land, the Supreme Court, where BDO is bidding to overturn a Court of Session ruling that the EBT scheme was wages and therefore subject to income tax.
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That decision was in relation to the Murray Group companies, including the liquidated Rangers holding company RFC 2012 plc, and does not affect the current regime at Ibrox.
Among those who benefited from the scheme were Barry Ferguson – who received £2.5m, and might have to repay £1m – Dutch player Ronald de Boer who 'borrowed' £1.2m and could have to fork out around £500,000 and former manager Alex McLeish with £1.7m, and a potential liability of £680,000.
Sir David Murray, the club’s former owner, who received £6.3m, could end up paying back £2.5m.
The HMRC case is that while EBTs can be used legitimately they were widely misused from the late 1990s until tax legislation was tightened in 2010.
The court will examine whether in order for a payment to constitute wages for tax purposes, it is sufficient that it was “derived from” work done by a particular employee and/or it “it formed part of the employee’s employment package”.
It will also look at whether the powers which a player or senior staff held as a 'protector' of a subtrust through which payments were made were "unreservedly" for the employee and therefore taxable wages.
The court has been told that the Murray Group established a Principal Trust for the benefit of any of its staff, including those at Rangers. The club then established a number of subtrusts for the benefit of their employees families.
Mark Herbert QC, representing the Advocate General for Scotland, indicated that the payments were repayable on death, with interest.
"It's a curious position for a trustee to be having to adopt," he said.
Julian Ghosh QC, representing the Advocate General for Scotland, said the payments "simply replaced a cash bonus paid to them and they were told that the reason...was to avoid tax."
He noted that the payments to footballers and executives were "discussed with them before the payment".
He added: "So far as the footballers are concerned, they were recruited on a single package."
Referring to an example of half a given employee's salary being given to a third party, Mr Ghosh said that they may be content with that because they might want that person to benefit, but also that they may "rather hope they will give or lend me the money".
He said it did not matter to whom the payment was made "if that payment is made as a reward for my work done."
Andrew Thornhill QC, representing BDO, said the Court of Session had erred in law in their ruling and that the payments should not be liable to tax.
He said that "all the [footballers] got was a loan. The family got the benefit, so far as there was a benefit..."
Mr Thornhill said that, if an employee asked for money for services rendered to be given to a charity for example, that was "recognised as not giving rise to a tax liability."
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He said there were many family-run companies "where there is no formal bonus" and the process was "was handled in some informal way. It is a very common way of doing things."
He also gave an example of an employer contributing to an employee's pension scheme as a "good example" of when an employee had a contractual right to receive a benefit in kind.
The hearing, which is due to conclude tomorrow, continues.
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