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The case against Rangers based on the tax tribunal documents

Evidence and conclusions from the first tier tax tribunal which fall down on the SPL's side.

Rangers are presented with the SPL trophy in 2005.
SNS Group

After a long wait, a First Tier Tax Tribunal published its findings this week in a case over the use of an Employee Benefit Trust to pay Rangers players between 2000 and 2011.

The majority verdict found broadly in Rangers’ favour, with the tribunal stating by two to one that most EBT payments were recoverable loans, and not earnings.

With the argument over the obligation of the “oldco” to pay tax on those payments now resolved, pending any HMRC appeal, attention has now turned to the possibility of league titles being stripped from the club by the Scottish Premier League.

An independent commission, due to sit in November but now meeting in early 2013, will hear evidence on whether EBT payments were correctly declared to the league, or whether rules were breached and players rendered ineligible.

This article is not intended to serve as a definitive outlook of how the SPL’s case will be presented when the commission hears evidence.

It is intended instead to highlight what has been stated at the tribunal which is relevant to the case, and using the statements given to outline how the case for the SPL may be constructed.

This article has two accompanying pieces. The first, Rangers tax case: Your questions answered on the SPL investigation, and the second, The case for the defence of Rangers based on the tax tribunal.


Were "side letters" disclosed to the SPL?

The SPL’s case will hinge on whether making EBT payments to players breached either or both of the two rules in question.

The first relates to the necessity for all payments made to players for playing football to detailed in contracts, which are then sent to the league.

The second relates to the necessity for all paperwork relating to payments made to be submitted to the league in order to confirm a player's eligibility to play in SPL matches.

Their argument will likely lean heavily on the use of “side-letters”, which it is said were not disclosed to them, and whether the payments described on those letters amounted to “payment of any description from or on behalf of a Club in respect of that Player’s participation in Association Football or in an activity connected with Association Football, other than in reimbursement of expenses”

Did Rangers make any admissions that could work against them?

An admission by Murray Group Holdings’ QC during the case may prove important.

Although Andrew Thornhill QC claimed “it was irrelevant… whether the Remuneration Trust benefit was contractual,” he is said in the tribunal documents to have “conceded that where it derived from a (footballer’s) side-letter it was contractual, but not in the cases of bonuses paid to employees of other Murray Group companies.”

Should contractual payments have been declared?

The SPL will likely seek to argue that any contractual payments made should have been lodged with them, although it has already been stated throughout that these were not, nor did Rangers feel it was appropriate as per the rules to do so.

What arguments did HMRC make about 'side letters'

Taking the final opinions of the tribunal aside, several arguments are put forward by HM Revenue and Customs give indications of the case against Rangers.

HMRC argued: “Monies paid to footballers by Rangers in terms of side-letters were agreed in advance as “part and parcel” of the employment contract.

“The side-letters, while not disclosed to the SFA, were in reality part of the player’s contract with the Club. The players expected to receive the monies paid into trust

“The over-arching contract was the contract of employment and the side-letter was part of it. No explanation had been advanced for its being a separate document. The inference was obvious: it was secret and not to be disclosed. “

What do HMRC say 'side letters' were used for?

HMRC argued: “Side-letters were used for periodic payments during the employment, in effect payment of a wage. They were used also for payment of bonuses and appearance money, and even for termination payments

“Side-letters, of course, had not been registered with the football authorities, the SFA and SPL. The spirit of their rules was that the whole contract terms should be registered. Suspiciously, no evidence was led as to who decided that the benefits in terms of the side-letters should not be registered.

“Non-registration of side-letters was incompatible with both authorities’ policing and disciplinary powers. For example any fines imposed on players would customarily reflect the disclosed wage. Non-disclosure would thwart the authorities’ powers.

“On any view, Mr Thomson argued, Rangers could have sought a ruling from the SFA or SPL about disclosure of side-letters but, clearly, they had chosen not to do so. There was a conscious decision to conceal their existence, and that extended even to the Club’s auditors.”

What did the dissenting view in the tribunal say?

It is later stated in the dissenting opinion of the Tribunal, held by one of its three members, that: "In cases where the Remuneration Trust arrangement was used, the agreement would have two parts: the employment contract and a letter of undertaking, usually signed on the same day.

"The letter of undertaking is referred internally within the group as ‘the side-letter’, and stated that the employer would undertake to contribute specified sums at specified dates into the employee’s sub-trust. The side-letter was not lodged with the SFA or SPL.”

What's the likely case against Rangers?

The case against Rangers is likely to hinge on whether the SPL finds that the side letters were part of the playing contract and should have been disclosed.

However, it must also be proven that the payments detailed in the side-letters were payments for playing activities. It must also be established whether it is appropriate to consider loans as payments, given that these loans are recoverable by the trusts established.

Now read Rangers tax case: Your questions answered on the SPL investigation, and The case for the defence of Rangers based on the tax tribunal.

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