Rangers tax scheme was 'smoke and mirrors but not a sham', says QC

The Supreme Court in the final day of the so-called Big Tax Case was told that Rangers stars were paid salaries and loans put through employment benefity trusts (EBTs) as part of a "single remuneration package" after they signed for the club.

The court heard that nearly £50m was paid by Rangers FC to star players and senior staff into the trusts as wages simply 'to avoid tax'.

BDO, liquidators of the Rangers FC 'oldco' are appealing against the Court of Session in Edinburgh ruling that £47.65m in 'loans' to more than 80 players and staff the now-outlawed EBTs between 2001 and 2010 for the benefit of their families were actually disguised salary payments.

A win for the Advocate General for Scotland and Her Majesty's Revenue and Customs (HMRC) could see several other clubs that used the tax-avoidance vehicle being sent accelerated payment notices for income tax and interest.

Mark Herbert QC, for Scotland's chief law officer, the Advocate General, said the structure of the trusts were 'like smoke and mirrors,'

adding: "A lot of it is designed to look like one thing... but actually [is] another," he said.

Not for the first time over the two day appeal hearing, judges asked whether it was a "sham", this time Lord Neuberger (below).

Mr Herbert replied: "It is not a question of whether it is a sham, we are not suggesting it is a sham. We are suggesting that it needs to be construed in a realistic way."

The court is examining whether in order for a payment to constitute wages for tax purposes, it is sufficient that it was “derived from” work done by a particular employee and/or it “it formed part of the employee’s employment package”.

One of the issues the court has been examining is whether the powers which a player or senior staff held as a 'protector' of a subtrust through which payments were made were "unreservedly" for the employee and therefore taxable wages.

Mr Herbert argued that the Rangers players and staff who received funds, were in control of what happened and that there was "absolutely no bar" to them benefitting themselves.

He said it was "not exercise of a 'power of amendment [of the terms of the trust] which gives rise to the tax charge, it is the existence of the ability of the employee to terminate this trust which make him unreservedly entitled to the asset [and in] unreserved control."

The court has been told that the Murray Group established a Principal Trust for the benefit of any of its staff, including those at Rangers.

The club then established a number of subtrusts for the benefit of their employees families.

Julian Ghosh QC, also for the Advocate General for Scotland, said for the footballers, payments into trusts and the payment of salary [were] component parts of one single remuneration package on the basis of which they were recruited' and that argument was "uncontroversial".

He said: 'If you asked the footballers, “were you paid?” They would say, “yes, I was paid once through my salary and once with the money into the trust.”

Equally executives were told the money by paid way of discretionary bonus to avoid tax would be paid through the scheme, he said.

He referred to an email by former Rangers chief executive Martin Bain complaining that while the EBT scheme provided a saving to Rangers, he was losing £6,000 of salary because it had not been put through the trust.

Roddy Dunlop QC for BDO, said there were "many criticisms" about the scheme set up but there was "nothing" that says that staff could make decision over the subtrust funds that benefitted them directly. "We are dealing here with genuine trusts, run by genuine trustees, exercising a genuine discretion," he said.

"The argument [by Advocate General's legal team] here is simply untenable and must be rejected," he said.

Leading tax lawyer Andrew Thornhill QC, for BDO said it was explained to Rangers players and staff that what they were getting in substance was a "trust fund principally for the benefit of chosen beneficiaries... with the real possibility that loans could be obtained from it".

He added: "It was "not earnings or emoluments."

Justices sitting in the case Lord Neuberger, Lady Hale, Lord Reed, Lord Carnwath, Lord Hodge are now considering their verdict.

If the Supreme Court rejects the appeal, the taxman would stake a claim to the proceeds of the liquidation of oldco The Rangers Football Plc, leaving other creditors further out of pocket.

Liquidators have previously confirmed that £72m of the £94.4m owed to Her Majesty’s Revenue and Customs (HRMC) relies on the taxman's claim that Rangers oldco was liable for its use of EBTs.