A tax tribunal has ruled against a stamp duty land tax (SDLT) avoidance scheme on which magic circle firm Clifford Chance advised.
In the first case to test a targeted anti-avoidance rule in the SDLT legislation, developer of the Chelsea Barracks site Project Blue Ltd now faces a £50m tax bill.
Project Blue, which is owned by Qatari Diar, a real estate affiliate of Qatar’s sovereign wealth fund, would have paid £12m less if it had not attempted to use the scheme, said HM Revenue & Customs.
Project Blue entered into a series of arrangements involving a sub-sale of the freehold of Chelsea Barracks, with a sale and leaseback of the same property.
The company claimed there was no SDLT payable by combining a relief which stops sub-sales being taxed twice, with rules on alternative property finance transactions.
Qatari Diar’s board met in January 2008 to consider and approve the proposed financing of the acquisition of the property, said the tribunal. In addition to the transaction and financing documents requiring approval, the board was provided with a ‘tax structure paper’ and a ‘Steps Paper’ prepared by its legal advisers, Clifford Chance, it said.
In February 2008, Clifford Chance submitted a ‘Disclosure of Avoidance Scheme’ in accordance with SDLT Tax Avoidance Regulations, said the tribunal.
The tribunal ruled that Project Blue had failed ‘to put forward evidence of all the factors that may have been taken into account’ and failed to establish that tax avoidance was not a factor in their decision to proceed.
Treasury minister David Gauke said: ‘The message is clear that entering into a tax avoidance scheme can cost more than paying the original tax bill.’
The judgment affects 24 similar commercial cases, protecting a further £85m, said HMRC.
Qatari Diar said: ‘We will be reviewing the tribunal's decision in detail with our advisers and considering our next steps. Project Blue has always tried to fully comply with all UK taxation matters evidenced by a pre-payment made on account to HMRC of the full amount of the tax originally claimed prior to the hearing.’
In an announcement on Wednesday, Gauke highlighted Project Blue as one of the 10 largest corporate tax avoidances tackled through the courts this year. HMRC claims to have protected a total of £1bn in tax in this way during the first six months of 2013.
Clifford Chance declined to comment.