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Greene King takes tax case to upper tribunal

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30th Apr 2013
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Rooney Anand, the chief executive of British brewery Greene King, has vowed to take his fight over a “controversial” tax scheme to the upper-tier tribunal.

Last summer Greene King lost a first-tier tribunal over the scheme devised by Ernst & Young called ‘Project Sussex’ that tried to gain tax relief on a loan payment within the company.

As revealed in a Guardian interview this week following a trading update to investors, the brewer now plans to appeal HMRC’s decision, denying that Project Sussex was an attempt to create millions of pounds of tax relief from nothing.

The second appeal comes despite the Public Accounts Committee citing the group's “purely artificial” scheme as an example of “an illegitimate game to outwit the taxpayer”. MPs singled out Project Sussex among several examples of the “never-ending game of cat and mouse” between advisers and HMRC.

Just last week the PAC attacked the Big Four over the “cosy relationship” and revolving door between advisers and government.

Anand told The Guardian he would have preferred to discuss the group's latest sales figures: “There is so much bad news. Greene King is trying to do the right thing by its investors, its customers and its people. You've used this opportunity to hit me over Project Sussex.

“To accuse Greene King of being corporate tax dodgers à la Starbucks, Google, etc was a total surprise and a shock. It's an insult to a 214-year-old company that is trying to prevail under the most difficult conditions – with some success, I might add – and that has paid many hundreds of millions of pounds in tax over the years,” he later added.

The first-tier tribunal found the scheme enabled the Greene King group to build a series of transactions between its companies. Ernst & Young devised the scheme in 2003, which involved the group lending £300m to a subsidiary. The subsidiary receiving the loan could then offset the interest paid on the borrowings against its tax bill.

The brewery argued that it was only obliged to partially de-recognise its loan if the assignment had brought about a significant change in its rights to benefits and exposure to risks.

HMRC argued that paragraph 71 of FRS 5 required Greene King to partially de-recognise its loan to GKBR (by about £20.5m), to reflect its disposal of the right to receive the outstanding interest and to accrete the amount of that loan back to its nominal value over the remaining period to redemption.

The judgment handed down, Greene King & Anor v Revenue & Customs [2012] UKFTT 385, confirmed that Greene King knew “the true underlying purpose of the transactions [was] as a means, if it succeeded, of generating relief for the payments of interest made without corresponding liability to tax on the receipts”.

David Milne QC, general counsel and solicitor to HMRC, said in his skeleton argument: “[The] transactions were structured in the curious way they were (considering that GKA could have been funded to make its acquisitions by simple interest-free loan) in order to attempt to take advantage of a perceived loophole in the loan relationships legislation so as to achieve a tax mismatch within the  Greene King  group. If the scheme were to succeed, GKBR would be entitled to a deduction (for corporation tax purposes) of over £21m for interest paid on an intergroup loan, without any company in the group being chargeable on the corresponding receipt.”

Greene King, the company behind the Hungry Horse and Loch Fyne restaurant chains, yesterday announced its pre-close trading update with retail like-for-like sales up 2.2% and food sales up 2.7%.

The group also reported a bumper Easter weekend, during which it sold 700,000 meals – its highest ever total.

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