Bank of Ireland is now liable for the disputed £30m and may have to pay interest on the amount owing from the date when the offence occurred, in 2003.
Bristol and West had created a dummy transaction in an attempt to exploit a weakness in tax law governing financial swaps that the bank hoped to use to lessen its corporate tax bill.
The UK tax authorities, HMRC, said Bristol and West had failed to exploit a loophole which did not exist. “Bristol and West, owned by the Bank of Ireland, has lost an attempt at tax tribunal to avoid paying around £30m tax on a £91m gain. The company transferred a swap contract to another Bank of Ireland subsidiary in a flawed attempt to exploit what it thought was a loophole in the tax rules,” the HMRC said in a statement.
Bristol and West had attempted to cancel out the £30m corporate tax bill that it owed by arranging to transfer a swap contract worth £91m to another Bank of Ireland subsidiary to avoid the tax.
Despite the convoluted attempts by the bank to move the swap around, the tax tribunal ruled that the weakness in rules on the taxation of swaps in Finance Act 2002, that the bank was attempting to exploit, simply did not exist. There is no element of fraud in what the Bristol and West have done, however, while the bank operated within the letter of the law they failed to abide by the spirit of the law, a spokesperson for the HMRC said.
The UK exchequer secretary David Gauke said: “The vast majority of businesses and individuals pay the tax they owe. The additional resources that we have made available to HMRC are helping to ensure the minority cannot avoid their responsibilities.
“HMRC will challenge avoidance schemes that risk denying the Exchequer vital tax revenues and will pursue to litigation when necessary.”
Bank of Ireland declined to comment.