A UK high court has ruled in favour of nearly 700 investors who put around £79m ($102m, €92m) towards the building of data centres in the North of England.
The investment scheme, also known as Cobalt, was subject to tax relief of £131m – or £50m “tax profits” for its investors – for funding developments aiming to stimulate growth in deprived areas of the country.
But HM Revenue & Customs (HMRC) claimed this to be an aggressive tax avoidance scheme, as back in 2016 the data centres were still unutilised.
The high court disagreed with HMRC’s claim, as it said that the Cobalt scheme did qualify for tax relief, overturning the taxman’s 2016 court victory.
British comedian Jimmy Carr, footballer Wayne Rooney and former Arsenal manager Arsene Wenger are among the 675 investors.
Not over yet
Paul Spenceley, tax manager at Irwin Mitchell, told International Adviser: “The case was originally decided in favour of HMRC but, on appeal, has been overturned.
“However, HMRC has been granted the right to appeal against this decision, so it may not be the end of the story.
“The case centred on the ability to claim enhanced allowances in enterprise zones, which were introduced by the government to attract business to deprived areas.
“The scheme appears similar to other ‘anti-avoidance’ type arrangements, where HMRC has been successful, but the relief used to create the tax repayments is different to others such as film partnership relief and other genuine trading arrangements.
“The courts have been examining if the allowance was due in the particular circumstances and the recent decision was in favour of the taxpayers claim.”
HMRC did confirm to IA that it is considering appealing the high court ruling.
