PwC Designed Tax Avoidance Program Deemed Illegal

By Michael Foster, Big4.com Blogger

A British court has concluded that a PwC-devised tax avoidance plan can no longer be followed within the law.

The tax avoidance mechanism was first designed in 2002 and helped individuals avoid paying capital gains tax. About 200 people avoided the tax, but they will now have to pay the full tax on those earnings plus interest for lost time.

The case was heard by Judge Hallett, who ruled that the plan created losses merely to avoid paying taxes. “Under the scheme as a whole, the options were created merely to be destroyed. They were self-cancelling. Thus, for capital gains purposes, there was no asset and no disposal,” she said in her judgment. “To my mind, this appeal was a thinly disguised attempt to undermine the Ramsay principle,”  referring to a decision made by the UK’s House of Lords that states that self-cancelling transaction losses cannot be used to avoid capital gains tax on earnings.

UK Exchequer Secretary David Gauke praised the ruling as a win for the government and for taxpayers. “This is a great result for the country and it’s another example of HMRC taking firm action against the avoidance schemes that would otherwise deprive the UK of billions of pounds. HMRC has a strong track record of quickly and effectively challenging avoidance through the courts, and anyone thinking of using such a scheme needs to carefully consider that. When millions of hard working families are playing by the rules, paying what they have to, we will not put up with the use of cleverly structured schemes designed purely to get around the rules.”

PwC has not yet commented. The firm employs 2,800 tax experts in the UK in six provincial offices.