GE ruling deals blow to HMRC in $1bn UK tax case

General Electric has won a crucial legal victory in its fight with the UK tax authority, which had accused it of “fraudulently” underpaying $1bn in taxes.

HM Revenue & Customs in 2018 asked the UK High Court to annul a 2005 tax agreement with GE, arguing the company had failed to disclose key information relevant to the deal. It sought 15 years of taxes, plus interest and fines, totalling more than $1bn.

Such claims are usually subject to a six-year limitation period but HMRC argued that GE had made a “fraudulent misrepresentation”, so the time limit did not apply. The High Court agreed in July 2020 that HMRC could pursue this argument against the US industrial giant at trial.

However, that decision was overturned on Wednesday by the Court of Appeal of England & Wales, which found in favour of GE.

It ruled that fraudulent misrepresentation is subject to a six-year limitation period and therefore HMRC could not pursue the fraud claim against GE over the 2005 deal. The contract struck between the two parties was binding like any other, the court declared.

“Having decided to go down [a] contractual route, rather than rely on their tax-gathering powers, the rights and obligations of HMRC under the settlement agreement then sounded in contract, not in tax law,” said Lord Justice Henderson.

The case stems from a deal reached in 2005 between GE and HMRC in which the company persuaded HMRC to approve a tax deduction on a transaction. This allowed GE to circulate billions of dollars between the US, UK and Australia without falling foul of recently enacted anti-arbitrage tax laws.

The judge took issue with some of the arguments presented by HMRC’s legal team, noting that the tax authority’s “written submissions would provide interesting raw material for several academic seminars or journal articles, but they do not impinge except peripherally on the task in hand”.

The US group welcomed the court’s ruling, saying: “GE complies with all applicable tax laws in every country where we do business, and we reject the UK tax authority’s allegations and are vigorously contesting these false claims.”

HMRC declined to confirm whether it would be taking the case to the UK Supreme Court, saying it was unable to comment on potential ongoing litigation.

“We make sure every taxpayer, no matter what their size, pays everything they owe under UK law,” HMRC said. “In 2018/19 we brought in an additional £10bn from the UK’s largest businesses. This is money that goes to fund our vital public services, like the NHS.”

PwC, whose legal team defended GE, also declined to comment.

The tax office has been ordered by the court to pay GE £550,000 upfront to reimburse its costs.

The UK tax authority has been toughening up on complex tax avoidance disputes involving businesses and wealthy individuals.

But legal experts said the latest development could in effect kill HMRC’s case against GE.

“The big thing seems to be HMRC have lost the ability to pursue the allegation of fraud,” one lawyer told the Financial Times. “On the face of it, HMRC has now lost a huge amount of money.”

Another lawyer described the development as potentially a “knockout blow for GE”. “[The judgment finds] HMRC are too late to amend the grounds of their claim in the way they wish to amend it.”

However, the person added that HMRC might still want to bring the issue to the Supreme Court.