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Morgan Stanley subsidiary loses tax tribunal

2nd Apr 2013
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The upper tribunal has disallowed a loss made by Land Securities, which was to be offset against its tax liability, generated through a tax avoidance scheme by a subsidiary of Morgan Stanley.

Land Securities V HMRC could have cost the UK £60m, according to the Revenue, had the court battle not been lost by Land Securities.

The tribunal was an appeal by the company against a first-tier tribunal decision in September 2011, where Land Securities’ claims for a capital loss for corporation tax purposes arising from previous transactions, which the tribunal found to have been designed to create a loss of more than £200,000.

The company sold shares in one of its group companies to a Cayman Island subsidiary of investment bank Morgan Stanley.

It then inflated the value of the shares by putting money into the subsidiary, and then bought back the shares at an inflated price.

The company made a loss of £200m and claimed that this was because of the effect of an existing anti-avoidance rule. They also claimed they could use this loss as a deduction against tax.

However the tribunal disallowed the loss, despite Land Securities claiming that a dis-allowance wouldn’t be fair as the company would be left out of pocket if it sold the shares in future.

Exchequer secretary David Gauke said the net was “closing in” on those engaged in anti-avoidance activities.

“At a time when we must all pay our fair share, it is increasingly unacceptable for individuals and businesses to try to avoid or evade paying their taxes,” he said.

HMRC’s director general for business tax, Jim Harra, added: "This scheme was flagrant tax avoidance that provided finance to a FTSE 100 company that appeared cheap because the UK taxpayer was expected to pick up a £60 million bill".

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