The Rangers Tax Case decided - who were the real villains?

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Finally, after lumbering on for over seven years, the so-called Big Tax Case has reached its conclusion. So long has it taken that it now has no financial burden to the club moving forward, despite clearly bruising the legacy of some fantastic achievements in the previous decade.

By now, everyone reading this will be well aware of the Supreme Court's unanimous decision, but what implications, if any, does this have for Rangers? Despite the predictable renewed appetite for title-stripping, short of expected tabloid bluster this should be the end of the matter and the SFA’s statement of yesterday afternoon confirms that.

In the Supreme Court judgement – and all previous judgements on this matter – Lord Hodge wrote:

"In this appeal, there is no suggestion that any part of the transaction, which comprised the tax avoidance scheme, was a sham..."

"The elements of the transaction, which I discuss below, were all genuine and had legal effect, as the majority of the FTT held."

In short, the scheme and its operation were fully legal. The matter at hand was whether money entering the Trust was subject to tax or not. A simplified view of the Employee Benefit Trust structure and operation of the scheme would be as follows.

The Murray Group, in 2001 (not during the 1990s as some claim), set up a Trust which it could pay money into to benefit its employees. This Prinicple Trust, if you can imagine, was like a tree with lots of individual branches, called sub-trusts (each of which was set up for individual employees – in Rangers' case players and directors). For example, whenever Rangers signed a player, they agreed to pay them their basic wage and also, in a side arrangement, pay an amount into the Principle Trust before setting up a sub-Trust that would feed the money back out to him – free of tax.

This was achieved by employees borrowing the money Rangers paid into the Principle Trust from the employee's sub-Trust as a ten-year loan, which Rangers and the employee envisioned would likely be extended and never paid back. The loan and interest eventually being used to offset Inheritance Tax upon the employee's death.

There are many more nuances to the EBT scheme than that, but the above should be enough to give most a brief idea of how it works. Think of it like being able to borrow from your pension free of tax immediately after your employer had made the contribution. At the time of implementation such schemes were entirely legitimate, wide-ranging and, shall we say, less politically controversial.

However, in 2010, despite the schemes appearing regularly in Rangers' accounts throughout the previous decade, HMRC decided to investigate the Murray Group’s use of such Trusts and shortly thereafter new legislation was also introduced to challenge EBT schemes. In layman’s terms Rangers’ lawyers argued that if you redirected your income to a third party Trust, with no guarantee you'd receive it then it shouldn't be taxable. HMRC countered that any money gained in the commission of your employment is taxable, regardless of whether you redirect a portion of your income to a sub-Trust or any other person or entity.

The following year Craig Whyte bought Rangers after Lloyds Banking Group applied pressure to Sir David Murray to sell his majority shareholding in the club despite debt being reduced at the time. This transaction was only made possible via money dubiously obtained from selling Rangers season tickets in advance of Whyte owning the club. Unsurprisingly, in less than 12 months and with no means of further investment, upon the orders of Whyte, the company which operated the club entered administration after a separate smaller case showed Rangers had not been paying tax to HMRC. Ironically, Rangers won the First Tier tribunal later in 2012 but early the next year an independent SPL commission – headed by Lord Nimmo Smith – found the club guilty of failing to disclose certain payments though also finding they had ‘no sporting advantage’.

Nevertheless, HMRC’s pursuit of the Murray Group continued through various courts and despite a further win for MIH at an Upper Tier tribunal, HMRC won its appeal at the Court of Session in 2015 which BDO also decided to appeal. Finally, after seven years, in July 2017, the Supreme Court favoured the argument HMRC put forward and so to bed we put the most unsavoury period in our history. Ultimately, HRMC won but those tweeting about cheating and calling for retrospective punishment make no allowance for the complexity of the court actions, the various decisions and political changes over the seven years.

"What about side-letters discussed in the SPL’s commission?", I hear your friendly neighbourhood Celtic fan/journalist ask. They bore no relevance to the decision. In determining the case, those Trusts which operated without side letters – i.e. Directors who received non-contractual bonuses – were determined to have a tax burden too. This takes us back to the earlier point regarding legality and future implications. It was determined that Rangers' operation of the Employee Benefit Trust scheme was legal, side letters and all, but that regardless of how the scheme was operated tax was payable on the money as it was diverted to the sub-Trust. It made similar conclusions about other EBT cases which, incidentally, had been ruled differently.

What does this mean for title-stripping? Well, considering the Supreme Court has just publicly stated the operation of the EBT scheme itself was not improper or 'illegal' and the LNS enquiry has already ruled on side-letters, it really only leaves spending beyond our means as the bone of contention. In that sense it’s difficult to argue against David Murray’s Rangers accruing debt to try and challenge in European football but they were far from alone in doing so.

No matter, few of us would fail to condemn Murray’s recklessness when it came to Rangers finances throughout the noughties. From a position of financial strength in the late 1990s, Murray became more and more fiscally negligent at Rangers and the club soon had a huge debt to contend with as the financial crunch took effect in the new millennium. Ironically, Rangers fans, via the RST strongly challenged Murray’s stewardship from as early as 2003 yet were bizarrely mocked by some of the same journalists suggesting the club cheated now. However, despite over 50 players being exposed to the EBT schemes, it’s doubtful the money saved made a huge difference to the way both the club operated and the team itself performed.

Out of those 53 players, less than 30 had EBTs worth more than £300,000 with a total amount paid over the ten years of operation of around £28m. Yesterday’s findings means around £11m worth of extra tax would have been due at just over £1m per annum. Hardly a sum Murray, rightly or wrongly, would have blinked at. Yes, some of these players may not have signed without the comfort of an EBT but, as Dave King recently said “we would still have signed players of equal abilities”. Is that morally right? Perhaps not and clearly the subject of clubs carrying debt along with Financial Fair Play is something UEFA have been attempting to address in recent years. But recent reports show this to be problematic across Europe and Rangers were far from alone in taking financial risk to deliver success in Scotland. And, ultimately, as a club there’s no doubt Rangers have paid for it whilst others have benefited strongly from our troubles over the last six years.

With that in mind, the fact the apparently easily misled and/or duped Sir David Murray remains a multi-millionaire businessman and Craig Whyte ostensibly just an innocent victim of circumstance (not sure Octopus would agree) then if you want a villain for what happened, these are the people arguably responsible for others losing out over the piece. On the park, Rangers were victorious at the time and, as the SFA have suggested, that’s how it should stay. Now, success seems as far away as it’s ever been for the club and one would think that victory enough for those who will always stand against us regardless of what titles we have or have not. Or will these people, led by those who make a tidy living from them, continue to aid Scottish football in its efforts to hate itself to death?

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