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Formula One tax affairs under speculation after £180m agreement with HMRC

09/04/2018 News Team

Labour has called for a review of Formula One's (F1) tax affairs after F1 owner, American investment firm, Liberty Media, settled a £180 million agreement with HM Revenue & Customs (HMRC) last year on a legal tax avoidance scheme.

It is also believed that F1 only paid two percent on its profits last year when the official rate of corporation tax is 19 percent. International tax lawyer Miles Dean, managing partner of Milestone International Tax referred to the two percent as the “effective tax rate” and that the “profits, not revenue, of the UK enterprise will have been taxed at the prevailing rate and it is this tax cost, which, when divided by EBITDA (earnings before interest, taxes, depreciation, and amortisation), gives the effective tax rate.”

"The simple fact is that the UK companies within the F1 structure are, it appears, funded with debt and equity. The debt will carry an interest charge which is deductible against the UK profits. The UK has various anti-avoidance measures to prevent excessive use of debt, such as transfer pricing regulations, the worldwide debt cap and corporate interest restriction rules,” Mr Dean continued. 

Mr Dean said the Government was on the “front foot” and that tax courts have become “very pro-HMRC in the past few years” when it comes to battling tax avoidance. “The only evidence we see here is taking an assumption and turning it into a fact. If it is avoidance then why have HMRC refunded £180 million of tax,” he noted. “HMRC are under no obligation to disclose the agreement they have reached with F1.”

"The refund presumably relates to an adjustment of the rate of interest applied to the financing costs over a number of years. It is simply the taxpayer and HMRC reaching an agreement as to the correct amount of tax payable under the prevailing laws,” he added. 

Commenting on this matter a Formula One spokesperson told ITV News in a statement that they “conduct all of its tax matters fully in accordance with applicable tax law.”

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