Dr Poon’s Thoughts Examined
As is common knowledge now, the First Tier Tax Tribunal recently found in favour of Murray International Holdings and it’s subsidiaries via a two votes to one majority. In this article, we look to the thoughts of Dr Heidi Poon, chartered accountant, experienced member of such tribunals and a judge to boot. Some have said that Dr Poon’s thoughts are meaningless, having been outvoted by the other two individuals on the tribunals panel, Mr Muir and Mr Rae. However, whilst Dr Poon is an accountant and not a lawyer, and whilst her thoughts cannot change anything at this point in time, I personally feel they are worthy of some examination, especially with the prospect of an HMRC appeal looming at some point in the future.
If you don’t feel her views with regards to this case are worthy of any discussion, then I’d suggest you save yourself a few minutes of your lifetime and stop reading now. Go and make a cup of tea or something, watch the television, or check Twitter. Really, it’ll save you a lot of hassle, and perhaps some stress as well.
In the style of our recent article regarding the evidence given by both sets of witnesses (those for Murray International Holdings and those for the taxpayer), the majority of the wording below will be quoted directly from the tribunal verdict’s appendix, written by Dr Poon herself.
Early on in her documentation, Dr Poon highlights the amount of money that is being contested by HMRC, saying “The initial assessments were variously amended and subsequently consolidated for the quantum of £46,265,397 as at 21 April 2010. The split of the total assessed is £34,650,228 for income tax, and £11,615,169 for employer’s national insurance contributions.”
She then specifies the amount being contested with direct regards to Rangers Football Club “Of the £46.2 million assessed, the sum of £36.6 million (PAYE £27.4m, NIC £9.2m) is on Rangers, and the balance of £9.6 million allocated variously among the other four group companies.”
Dr Poon soon goes on to outline what she feels are the main questions regarding the case “The critical issue in front of this Tribunal is whether payments made via the remuneration trust mechanism amount to being emoluments for tax purposes. The questions that arise are as follows: (1) Whether upon the true interpretation of the contractual arrangements, there have been payments made to the employees via the trust? (2) Can these trust payments be characterised as having been made ‘unreservedly at the disposal’ of the employees?”
Quickly, Dr Poon is critical of the some of the witnesses who were present, and the attitudes they displayed, saying “…the overall impression created by the Witness Statements from the Murray Group senior employees and Mrs Crimson of the trustee company, was one of guardedness and careful omission of salient facts.”
Soon after, we find references to several witnesses specifically, Mr Red, Mr Yellow, Mr Black, and Mr Blue. Dr Poon’s appendix states: “Mr Yellow spoke of the scheme having tax advantages, and Mr Blue confirmed his understanding of the scheme as for avoiding PAYE and NIC. Mr Blue was one of the two key executives with whom Mr Red discussed the scheme prior to its implementation. As a Chartered Accountant, Mr Blue’s understanding of the scheme as for tax avoidance was not without professional knowledge either.”
“As for Mr Black, he denied that the scheme was for tax avoidance in cross-examination, though he went on to describe the scheme as ‘a method of us acquiring, especially football wise, better players in a more cost effective manner than we would be able to do so’; that the club had been ‘very ambitious at that time’; and ‘it was seen as a correct and proper way for us to proceed’; that Rangers ‘have been very successful, because we’ve been able to attract players of a certain standard that, perhaps, we may not have been able to otherwise’ (Day 5/126).”
The criticism of Mr Red continues, showing an unwillingness to cooperate with HMRC’s enquiries in the past (begging the “if you’re not guilty, what have you go to hide?” question), “24. The enquiry commenced in January 2004 and it was not until April 2008 when sufficient information became available (but not through the Appellants’ disclosure) for prior year assessments to be raised. The protracted and chequered course of the enquiry was largely due to a lack of candour and co-operation from Mr Red, who was the chief officer dealing with the enquiry.”
“Key documents such as the side-letters, calculations of figures of contributions, emails and memorandums related directly to the trust’s operation were not disclosed, despite repeated requests and statutory demands for information. From the enquiry correspondence, the tone in Mr Red’s response suggests a degree of hostility, and his remarks were at times aggressive. With his background as a former Inspector of Taxes, and with his professional.”
Dr Poon does not stop there, continuing “It seemed that when the inconsistency between his oral and written evidence could not be explained away, Mr Red resorted to attributing authorship of the correspondence to a third-party of whom he could not be specific. The overall impression created by Mr Red’s evidence, oral and written, was that he was being vague and evasive. It was clear that he was not on sure ground, because he was trying to tell a version of how the trust scheme should operate, rather than the version as it actually operated.”
Before moving onto the subject of side letters, Dr Poon finally alludes to her concerns regarding Mr Red attempting to influence other witnesses prior to them giving evidence to the tribunal, stating “As a result of this schism, it led to deliberation and inconsistency in Mr Red’s testimony, and to subsequent attempts to influence Mrs Crimson’s (and possibly Mr Scarlet’s) evidence to support a version of how the scheme should have operated.”
When Mr Red was eventually questioned regarding the much maligned side letters, he replied “I still say there is nothing secret about them. We have nothing to hide in these side letters”. He continued, “it’s our view that the side-letter or the letters of undertaking do not need to be registered or lodged with the SFA”.
This, of course (in footballing terms), flies directly in the face of the legality outlined in the tribunal itself, which cites “Rule 4.5 of the SFA’s Registration Procedure Rules”, which state “All payments to be made to a player relating to his playing activities must be clearly recorded upon the relevant contract and/or agreement. No payments for his playing activities may be made to a player via a third party”.
Dr Poon continues “35. It is not accepted that there had been no deliberate concealment of the side-letters, in view of how the first side-letter only came to light through the seizure of Mr Berwick’s file nearly four years into the enquiry. It is not accepted that the non-disclosure of the side-letters arose from a ‘credible’ view that Mr Red considered the side-letters irrelevant to HMRC’s enquiry.”
She then goes on to say, that, in her opinion, “The side-letters showed a form of contractual arrangement”.
Dr Poon then speculates “A fair conclusion to be drawn from the circumstantial evidence on the one hand, and Mr Red’s oral evidence on the other, is that the side-letters had been actively concealed. The reason for the concealment might have been, in Mr Red’s view, the side-letters could be incriminating evidence against the impression of the trust operation that he had been trying to give.”
As the appendix continues, we are soon left asking ourselves whether Rangers Football Club were actively attempting conceal such side letters, or whether, as they claim, they were open and honest about their existence and relevant detailing from the start. For this reason, Dr Poon discusses the Club’s relationship with their independent auditors (back when they actually had accounts audited), beginning “The Respondents submit that ‘the auditors had not seen the side letters, otherwise they would have been a matter of specific comment”.
She continues “It would appear, from the evidence heard on Mr Purple’s termination payment, which is narrated in more detail under the section on ‘Termination Payments’ in my findings of fact, that the auditors had been told an untruth on both scores, regarding the waiver of the right, and the loan being unrelated to the contractual payment on transfer. The auditors were also told that the paperwork for Mr Purple was ‘mislaid’, (and therefore was not available for the auditors to inspect). Over the use of the remuneration trust, the auditors seemed to have been treated by the Appellants with the same lack of candour as accorded to HMRC. The auditors did not seem to be privy to any (or much) of the documentation, and had not formed a view on the scheme other than relied on what they had been told by the management.”
Dr Poon then progresses to criticise the fact that Mr Red picked up Mrs Crimson from the airport after he had given his evidence to the tribunal, but the night before Mrs Crimson was due to give hers. This meeting also included the passing over of a brown envelope containing documents regarding the case to Mrs Crimson, and is discussed in more length here.
I see no point in repeating the information contained in that article, so I shall continue with Dr Poon’s review, as she moves her attention to the “loans” themselves, stating:
“The terms and conditions related to these loans advanced to the employees as protectors of their sub-trusts characterise the reality of the funds that have been made to the employees as ‘loans’. From the documentary and oral evidence, the following features can be ascribed to the loans:
(i) No security had ever been requested or required for the hundreds of thousands of pounds borrowed;
(ii) No scrutiny was undertaken of the purpose for which the loans were requested;
(iii) No vetting of borrowers or assessment of means was carried out;
(iv) The loans were expected to be renewed indefinitely and to remain as liabilities against the employees’ estates;
(v) It was the understanding of all parties involved – Appellants companies, trustees and employees – that the loans would never be expected to be repaid against the wishes of the employees;
(vi) The interest rate was chosen at a percentage (1.5% or 2% because of Deepwater’s involvement); and according to Mrs Crimson, the rate did not vary with changes in the LIBOR rate, so the trustees were committing themselves to the same rate of interest over the term of 10 years;
(vii) No interest had ever been paid during the term of any of the loans; again it was the understanding of all participants that the interest would never be called upon to be paid during the lifetime of the employees who had borrowed the sums; “
(viii) The interest element was designed to be rolled up indefinitely, to remain as a ‘paper’ debt and to augment the overall indebtedness of the employees’ estates, thereby conferring a bigger reduction against inheritance tax.”
“61. The certainty that the loan would be renewed and never be required to be repaid was expressed by various witnesses as follows:
(a) Mr Black: ‘When my first loan is up in mid-2011, I will decide either to pay back the loan or re-negotiate. Whatever I feel is appropriate at that moment.’ (Day 5/141.16)
(b) Mr Grey: ‘I could not conceive of any situation where the loans would require to be repaid.’ (Day 5/107.18)
(c) Mr Violet: ‘I expected that the trustees would renew the loan with the result that the loan would carry on until I died, which would produce an inheritance tax benefit. Therefore, while I knew these were loans, I never thought I would pay anything back during my lifetime.”
Now, all of the above was written in November 2012, but never published. It was an unfinished article, as you can see. There is nothing there which isn’t already in the public domain. However, it is never a bad thing to highlight such matters, especially the views of Dr Poon, which many may have heard about, but not directly read in the lengthy document published post tribunal. Today, it has been confirmed that HMRC will appeal. As ever, I will leave you to draw your own conclusions, but one has to wonder “why did virtually none of the above ever make it into the Scottish press?”
Of course, it’d be nothing other than pure speculation to suggest that some people within the media know more than they are letting on.