Icebreaker threatens to sue Deloitte

Icebreaker Management, the company behind recently defeated avoidance scheme Icebreaker, has threatened Deloitte with legal action. 

The company had employed Deloitte to act as instructing party to counsel after HMRC took Icebreaker to a tax tribunal over its scheme. 

In May, the tribunal ruled that the scheme, used by more than 1,000 investors including Take That's Gary Barlow, was known to all who used it to be a tax avoidance scheme.

It had attempted to shelter more than £300m and scheme users are now facing substantial tax repayments. 

According to an email to investors seen by the Times, Deloitte was sacked as the company's legal adviser after the head of its tax policy group, Bill Dodwell, wrote in Tax Adviser that any appeal would be doomed to fail. 

He wrote: "We should congratulate the tribunal on the insight and plain speaking which makes it clear there cannot possibly be a successful appeal. Hopefully, all the members will settle up quickly.”

Caroline Hamilton, Icebreaker founder, wrote in the email that Deloitte had been in breach of duties as Icebreaker's instructing solicitors. 

It appointed Rosenblatt Solicitors to 'take action' against the Big Four firm if necessary.  

In addition, according to Martin Taylor, head of client relations at Rebus Group, said since the decision, "It has come to light that investors in a number of Icebreaker schemes dating from 2009 were offered insurance as a means of ensuring their investment capital was protected in the event of a negative decision by HMRC.  

Taylor adds: "Based on correspondence from the insurers solicitors, it is clear that the insurer believes it was not provided with the relevant information. The insurer has voided the scheme and agreed to repay the premiums.

“In less than 40 days, the Icebreaker investors have a) lost in Court, b) lost their insurance cover, c) have a conflicted adviser probably requiring replacement. Worse still, in many cases the firms which advised investors to invest, have either become insolvent or the directors have ‘phoenixed’ the businesses so as to avoid the inevitable claims which would surely follow.

The appeal deadline following the tribunal decision has now been deferred to 21 November to allow Icebreaker members to agree terms on those issues the Judge decided were questions of fact. 

Deloitte said it wasn't commenting on the situation at the moment.

Comments
Philipredhead's picture

Icebreaker    7 thanks

Philipredhead | | Permalink

If the promoters of any aggressive tax scheme feel they need insurance or councils opinion that surely that says something about their confidence in the scheme in the firs place. I have little sympathy for the promoters of such schemes.

stepurhan's picture

Poe's Law    7 thanks

stepurhan | | Permalink

The creators of a spectacularly failed tax avoidance scheme suing someone else for poor advice. You'd be forgiven for thinking this was a piece of satire, the concept sounds so bizarre.

However, the following

Quote:
“In less than 40 days, the Icebreaker investors have a) lost in Court, b) lost their insurance cover, c) have a conflicted adviser probably requiring replacement. Worse still, in many cases the firms which advised investors to invest, have either become insolvent or the directors have ‘phoenixed’ the businesses so as to avoid the inevitable claims which would surely follow.
really cheered up my day. I feel so not sorry at all for the poor little "investors" troubles.

Zero sympathy    5 thanks

the_Poacher | | Permalink

I hope HMRC keeps all involved under permanent scrutiny

Perhaps some sympathy?

Andrew_hound | | Permalink

It was not only the 'big boys' who were offered this scheme. A 'small' client of mine came to me for advice and, after reviewing it in all its details, I found the 'aggressiveness' too much risk for this client and it was agreed not to proceed (thankfully!!). But I am certain there will be many other small investors who 'bit'.

Nobody is coming out of this smelling of roses    6 thanks

Vaughan Blake1 | | Permalink

I would have thought that stating in the press that your clients appeal is doomed whilst taking their money constitutes rather poor professional ethics.

Icebreaker

Charles Paynter | | Permalink

I agree that seeking insurance is a bit of a red flag but why would seeking an opinion by Counsel be seen as a bad idea?  If a company seeks to validate their claims that the structure is in line with legislation then surely there are worse ways to go about it than getting the opinion of a leading tax barrister. 

Don't get me wrong, opinions can be obtained that answer only specific questions that are asked and as such aren't worth the paper they are written on and on one occasion a company I looked at said "we have an opinion" and when pressed they confirmed they said it was in THEIR opinion.  Essentially, the onus really does lie with us to actually read the opinion and understand the risks our clients face, but the existence of a counsel opinion alone shouldn't make planning something to worry about and if it's a good opinion then it is a positive not a negative.

p.s. Not defending this planning in any way!  I have never liked these types of products but I do respect the Barristers and think that we shouldn't view their expertise as a bad thing.

Hopefully all of the members will settle up quickly

AndrewV12 | | Permalink

Heres a lovely line to all members of the scheme (see below) , especially the line 'hopefully all the members will settle up quickly'. Stating the obvious participants of such schemes are greedy people, but to be led in by the slick patter and then told settle up ASAP, I almost feel sorry for them.

 

He wrote: "We should congratulate the tribunal on the insight and plain speaking which makes it clear there cannot possibly be a successful appeal. Hopefully, all the members will settle up quickly.”

An interesting trick on the part of the HM Government    9 thanks

WordSmith1 | | Permalink

Nobody seems to have really noticed/taken issue with this fabrication they've come up with called 'Aggressive Tax Avoidance'.  Tax avoidance is, and always has been legal.  They themselves are excruciatingly careful to admit this in all of their press releases on the subject, albeit in as cursory way as possible so that Joe Public won't pay much heed. 

But 'aggressive tax avoidance' (which is an utterly meaningless distinction) is suddenly...bad? It's certainly not ILLEGAL - nowhere have they stated that.  But they have managed to swing the opinion of the general public into the frame of mind that it's immoral, as if it is the job of the government to legislate on what is moral.  We sit in judgement on other countries where the rule of law is confused with 'morals' - countries where for example women are stoned to death for having affairs - yet we now live apparently in a regime where, even if one's actions are 'legal' one may still face persecution by the regime on the basis that they were immoral.

If you want proof of the breathtaking double standards of 'Call me Dave' and his cronies, look no further than the relative treatments of Jimmy Carr (slightly lefty comedian who takes the p*** out of the establishment) and Gary Barlow (vanilla pop star who is a visible supporter of the Tory party and involved in public events including the Queen's jubilee).  One is 'morally wrong' and gets emotive comparisons made about his 'hardworking fans who pay their taxes' and the other is conveniently ignored with a deflection that it is 'not the place' of the government to 'comment on an individual's tax matters'.

Icebreaker seems like it was flawed in some vital ways from the outset, and nobody would argue that it seems a little unfair that a person who makes millions of pounds each year is able to find legal ways to avoid paying what those less fortunate must, but the hypocrisy and sleight of hand evident in the establishment's treatment of these matters is plain for all to see.

 

laurenceexigent's picture

PR Success    2 thanks

laurenceexigent | | Permalink

Its interesting I think that the real success of the HMRC is to create an atmosphere where legal tax avoidance is somehow no longer respectable. The danger here is that rather like the expenses scandal it could come back to bite the Govt and MP's in general quite badly. I suspect even now a number of newspaper reporters are digging around to see who amongst the Tory front bench or its major backers have used similar schemes. 

Who thinks neither George or Dave have used similar tax mitigation routes in the past?

 

This time I fully agree with you ...

dstickl | | Permalink

This time I fully agree with you, for writing:

stepurhan wrote:

The creators of a spectacularly failed tax avoidance scheme suing someone else for poor advice. You'd be forgiven for thinking this was a piece of satire, the concept sounds so bizarre.

However, the following

Quote:
“In less than 40 days, the Icebreaker investors have a) lost in Court, b) lost their insurance cover, c) have a conflicted adviser probably requiring replacement. Worse still, in many cases the firms which advised investors to invest, have either become insolvent or the directors have ‘phoenixed’ the businesses so as to avoid the inevitable claims which would surely follow.
really cheered up my day. I feel so not sorry at all for the poor little "investors" troubles.

 

As I recall in my opinion - Richard Brooks earlier wrote - Even the big tax avoiders recognise the moral bankruptcy [of TAX AVOIDANCE] if it suits them: when Tesco sued the Guardian in 2008 over (in this instance mistaken) allegations of large-scale tax avoidance, the company's lawyers claimed the reports amounted to 'a devastating attack on its integrity and ethics'. 

Link: http://www.guardian.co.uk/business/2008/may/17/tesco.supermarkets

Suntree's picture

Avoidance or evasion?    3 thanks

Suntree | | Permalink

WordSmith1 wrote:

Nobody seems to have really noticed/taken issue with this fabrication they've come up with called 'Aggressive Tax Avoidance'.  Tax avoidance is, and always has been legal. 

 

In my view aggressive avoidance is borderline evasion, and once scheme fails it becomes mere evasion, otherwise scheme participants wouldn't have to make tax settlements.

Participants of avoidance schemes know what their risks are and  know they are in fact evading tax. If one  through convoluted transactions "pretends" to pay i.e. interest and knowingly claims relief on that interest, can this be really called avoidance? If it looks like a duck, quacks like a duck, walks like  duck, it is a duck.

One positive consequence that differentiates aggressive avoidance schemes and sheer evasion is absence of criminal prosecution in case scheme fails. 

If all was legal in the eye of the law, how could it result int such devastating consequences including cancellation of insurance.  Legal components do not guarantee that final product is legal. 

 

 

 

BKD's picture

Blurring of the lines    1 thanks

BKD | | Permalink

Suntree wrote:

In my view aggressive avoidance is borderline evasion, and once scheme fails it becomes mere evasion, otherwise scheme participants wouldn't have to pay tax.

How do you define "aggressive"? One of our clients has just lost at FTT (having also lost at UTT) on a straightforward interpretation of a single piece of legislation. No convoluted arrangement in place. So, because the client now has to pay tax, are they now guilty of tax evasion? If they're not, exactly where would you draw the line between that and the likes of Icebreaker?

Suntree's picture

Avoidance schemes and not misinterpretation of legislation    1 thanks

Suntree | | Permalink

BKD wrote:

Suntree wrote:

In my view aggressive avoidance is borderline evasion, and once scheme fails it becomes mere evasion, otherwise scheme participants wouldn't have to pay tax.

How do you define "aggressive"? One of our clients has just lost at FTT (having also lost at UTT) on a straightforward interpretation of a single piece of legislation. No convoluted arrangement in place. So, because the client now has to pay tax, are they now guilty of tax evasion? If they're not, exactly where would you draw the line between that and the likes of Icebreaker?

 

I was not referring to misinterpretations of legislation.  Do you imply that  Gray Barlow fell a victim of such misinterpretation, or did he knowingly engage into something that in case of success would have saved him nice chunk of tax?

BKD's picture

I believe that Gary Barlow ...    1 thanks

BKD | | Permalink

... engaged in something that he thought would save him a nice chunk of tax, based on someone's interpretation of the legislation. I'm not arguing that his case and my client's case may have been at opposite ends of the spectrum - my specific question was, "where do you draw the line?" Anything involving a DOTAS number is evasion?

Suntree's picture

DOTAS number

Suntree | | Permalink

BKD wrote:

... engaged in something that he thought would save him a nice chunk of tax, based on someone's interpretation of the legislation. I'm not arguing that his case and my client's case may have been at opposite ends of the spectrum - my specific question was, "where do you draw the line?" Anything involving a DOTAS number is evasion?

Does the fact that contrived tax avoidance schemes are border line evasion is one of the reasons why such schemes have to be registered? 

I feel guilty against other participants in this forum, and will refrain from future replies. 

BKD's picture

No

BKD | | Permalink

Suntree wrote:

Does the fact that contrived tax avoidance schemes are border line evasion is one of the reasons why such schemes have to be registered? 

No (not in my view, anyway). The clue is in the name - Disclosure Of Tax Avoidance Schemes. The purpose of the registration is to alert HMRC to the promotion of products that may result in loss of tax - so that HMRC can then challenge them and/or have the legislation changed.

Avoidance or Evasion    3 thanks

digitalabacus | | Permalink

Forgive me but wasn't the mantra always "Avoidance Good Evasion Bad" ?

Avoidance was always going to be more involved and intricate the higher up you went in the pecking order of clients and their professional advisors.. After 40 years I long decided if it was too complex or wordy it probably wasn't going to be kosher. Or stand up to a rigorous questioning ... "Does this transaction appear to be a normal trading or economic matter - is it one that is carried out in the normal course of the business". Simple questions such as

"Why has this company just decided to borrow more monies from its Luxembourg subsidiary than the size of (A) its Turnover or (B) the total GDP of Monaco ( don't ask why I chose that one .. I used to collect the triangular stamps )". 

Now if I was a high up top ranking Inspector of Taxes I would be asking those sorts of questions, of the large companies - I would even try to alter the legislation so I didn't have so many future investigations. I would probably then get an MBE or something for filling the gigantic holes that still exist in the UK plc coffers. Or I could continue to allow the current fashion of "nudge psychology" where you alter the public ( and hopefully Corporate) mindset and hope everything sorts itself out quite nicely.

Meanwhile to provide equity for the international community I would come up with the spiffing idea that taxation should be calculated on trading profits before inter-group charges be they royalties or interest or management, as well as basing the apportionment of such tax liability on the turnover generated within each country. This would allow senior management and accountants to get on with the real business of generating new business, employment and profits.

..Phew , that was almost radical... like deciding on a new England coach or team...

Next subject please " how to avoid the next economic bubble"

 

Hmmmm

WordSmith1 | | Permalink

Suntree wrote:

WordSmith1 wrote:

Nobody seems to have really noticed/taken issue with this fabrication they've come up with called 'Aggressive Tax Avoidance'.  Tax avoidance is, and always has been legal. 

 

In my view aggressive avoidance is borderline evasion, and once scheme fails it becomes mere evasion, otherwise scheme participants wouldn't have to make tax settlements.

Participants of avoidance schemes know what their risks are and  know they are in fact evading tax. If one  through convoluted transactions "pretends" to pay i.e. interest and knowingly claims relief on that interest, can this be really called avoidance? If it looks like a duck, quacks like a duck, walks like  duck, it is a duck.

One positive consequence that differentiates aggressive avoidance schemes and sheer evasion is absence of criminal prosecution in case scheme fails. 

If all was legal in the eye of the law, how could it result int such devastating consequences including cancellation of insurance.  Legal components do not guarantee that final product is legal.

I think that the distinction is meaningless.  Tax 'evasion' is bad but tax 'avoidance' is ok - that has always been the mantra.  Now we have this extra type known as 'aggressive avoidance' which is neither fish nor fowl.  It ISN'T evasion (because if it was then it would be illegal) and it ISN'T Avoidabce (because if it were it would be ignored). 

The truth is that 'Aggressive Avoidance' is a convenient construct, put together by the government to give it licence to take action at its own discretion.  Are they pursuing Amazon, or Starbucks, or Vodafone for their 'highly artificial arrangements' designed to avoid much of their tax liability? No, they are concentrating on smaller fry, who they are more likely to be able to intimidate and bully into just backing down and paying the money they 'owe'.I wouldn't cliam for one second that anyone has a moral right to avoid their tax, but neither would I be so quick to judge the avoidance of tax as 'immoral', especially if I wasn't going to apply the moral ruler consistently.  If the government wants to talk tough about pursuing tax avoidance and dealing with the money it drains from the economy, then it needs to do so properly, and I suspect that given the Tory Party's most prominent and valubale donor is also one of the biggest avoiders of tax in the world, then I doubt that this will happen any time soon.

ICEBREAKER

HUGH W DUNLOP | | Permalink

Big 5, Big 4, Big 3 ?

my view is that these scheme should not have been....    2 thanks

Jekyll and Hyde | | Permalink

..... called tax avoidance schemes in the first place and creating a product and market for them. That is the real problem here, actually blurring the name of avoidance.

I think these schemes are wrong, but that is only my view.

As for the people to blame, I also blame the establishment as by creating the dotas rules they simply, at the time, highlighted that such practices were acceptable in certain circumstances. If they didn't want big investors investing then they would not have created the dotas rules.

I do wonder if the establishment was happy with these schemes and resulting tax take reductions, until Joe public found out about then and started a political backslash.

NEA Nil Tax Scheme    2 thanks

North East Acco... | | Permalink

I have a great new scheme guaranteed to reduce your income tax liability to Nil, whatever your income.

Lets say income £250K and you want to pay no tax. I will charge you £250K fee for tax advice which you pay.

Taxable income now Nil and tax bill now NIL.

What a scheme!! Queue up folks and all takers can PM me.

PS: No you don't get your money back but your tax bill is NIL which was your stated aim. I am more than happy to pay the tax on these scheme fees.

What about other countries?

Vaughan Blake1 | | Permalink

I often read about other countries throughout the world having tax evasion problems.  I have never read about 'avoidance' occurring abroad.  Does this mean it is a peculiarity of the complex UK system and therefore a British only sport.?

Icebreaker suing Deloitte's?    1 thanks

Andrewmoore777 | | Permalink

Well, I suppose having lost they need some money from somewhere! I do so hope Icebreaker go out of business and stop pandering (ineffectively) to people's natural greed, then everyone might pay their proper share of taxes.

carroccio1958's picture

plus 1 million

carroccio1958 | | Permalink

...agree wholeheartedly let s get some balance back into the debate .

HMG RULES

HMG SCREW UP

DO NOT spin it onto the populace on "moral" grounds -- they do not exist as a fiscal construct or concept !!!

As Lord Clyde said...

Poindexter316 | | Permalink

"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

It is for this reason that the distinction between avoidance (legal) and evasion (not legal) is of such importance.

DOTAS is a mechanism to give HMRC much earlier notice of arrangements that seek to avoid tax. In this is objective it is something of a success.

The real issue with all tax avoidance (absent arguments about morality)is the drafting of tax law itself and more specifically the interaction of differing provisions in differing acts.

It is this issue that spawns both tax avoidance and also much tax planning.

HMRC, for its par,t is also clearly aware that there are circumstances where the law would take more tax than even they consider equitable and so we have in addition to DOTAS a white list where we have an acceptable avoidance scheme.

Icebreaker, K2 etc provide the (not so)rare spectacle of celebrities of one kind or another getting a public lambasting, but the root cause of the problem remains intact.

carnmores's picture

2 words

carnmores | | Permalink

slim and none

Not much sympathy for anyone

mabzden | | Permalink

I can't say I have much sympathy for any of the parties involved. As a general rule, I would say the dodgier and/or greedier the client, the more likely they are to turn round and sue their accountant when they get found out.

As the saying goes, "he who sups with the devil should have a long spoon". So I'm sure the big firms and lawyers who offer this type of high-risk advice have bullet-proof contracts in place to prevent any of their big fat fees being clawed back when everything blows up.

All in all, this leaves a bad taste in the mouth and brings the accountancy profession in general into disrepute.

slipknot08's picture

...all Deloitte did was act for them to instruct Counsel

slipknot08 | | Permalink

quote <"The company had employed Deloitte to act as instructing party to counsel after HMRC took Icebreaker to a tax tribunal over its scheme."> endquote

I don't see any allegation in the article above that Deloitte was involved in designing the scheme in question - its engagement appears to have been to get them legal advice in front of he Tribunal, which it did.

Accordingly, having fulfilled that engagement (parties duly appeared, Icebreaker found not to work as intended etc), surely Deloitte's engagement and responsibility under that engagement had ended?

Whilst it might have been annoying for Icebreaker to see comments in the press apparently emanating from Deloitte,  since they were after the event, they can have had no bearing on the conduct of, or result in, the case... so how is it actionable? (not to mention the 'fair comment' defence)