HM Revenue & Customs has won a tax avoidance case worth £35m against French banking group BNP Paribas.
The bank had tried to use a tax avoidance scheme to claim an exemption from tax by generating an artificial loss on the purchase and sale of dividends without disposing of the underlying shares – a process known as dividend stripping.
The First Tier Tribunal confirmed HMRC’s view that legislation stopped financial traders from claiming artificial losses by buying and selling dividends on shares and then claiming the sale proceeds are tax exempt.
Penny Ciniewicz, HMRC’s director general for customer compliance, said: “Tax avoidance doesn’t pay. This decision adds to the comprehensive run of wins by HMRC in which the courts have found against the small minority of taxpayers who seek to avoid tax.
“Increasingly, companies and individuals who have tried to avoid tax are throwing in the towel and paying the tax they owe.”
Legislation, repealed in 2009, had previously provided that, where the right has been bought and then sold on before receipt of the dividend, the proceeds of the sale were not regarded as income of the seller.
Scheme users had argued that this exemption applied to a financial trader who claimed to deduct the cost of the dividend in calculating its profits and losses for tax purposes.
This would have had the effect that the financial trader made a loss for tax purposes equal to the cost of buying dividend rights.
BNP Paribas’s argument was that the fiscal motive did not prevent what was, on an objective analysis, a trading transaction from being regarded as such but the judges disagreed.
HMRC’s latest annual report showed the tax authority brought in an additional £29bn by cracking down on individuals and businesses who try to avoid or evade paying the tax they owe.