Crystal Myth (The Untold Story of the Wee Tax Case)

19497686Preamble. A resolution by Celtic shareholders requesting that the UEFA Club Financial Control Body (CFCB) investigate the circumstances surrounding the issue of the UEFA licence in 2011 by the SFA to Rangers, has gained sufficient signatures to have it placed on the agenda of the forthcoming Celtic AGM.

(see links at https://www.celtictrust.net/?func=d_home_article&id=433 )

Celtic’s response will emerge in due course but the following article might help those only loosely acquainted with the background to appreciate the factors at play.

Breaking Bad is the TV series story of Walter White (played by Bryan Cranston), a struggling high school chemistry teacher who is diagnosed with inoperable lung cancer at the beginning of the series. He turns to a life of crime, producing and selling methamphetamine, known more commonly as Crystal Meth, with a former student, Jesse Pinkman (played by Aaron Paul.)

Whilst on a drugs raid with his DEA brother in law Walter sees Jesse escape
but later meets up with him to get information on what Jesse deals in. Walter’s thinking is that as a chemistry teacher he can make the best crystal meth on the market. He then embarks with Jesse in gathering the equipment and then the ingredients and starts cooking. At the end of the cooking process a blue liquid emerges that is poured into trays and left to crystallise. When crystalised it is broken up into pieces ready for sale.

(Mr White’s primary goal, when he begins manufacturing the methamphetamine, is securing his family’s financial future before he dies but one thing leads to another……… )

The Discount Options Scheme (DOS) aka “The Wee Tax Case”

(Walter Meets Jesse and orders the gear and ingredients)

In 1999 Rangers embarked on their tax avoidance journey using a Discount Option Scheme, later known as “the wee tax case” and through it until 2003 paid Craig Moore, Tore Andre Flo and Ronald De Boer via a sham share options arrangement sums that HMRC later assessed avoided £2,827,801 tax including interest.

(NB that loans to players were not a feature of the DOS and on that basis should not be confused or conflated with the loans based EBTS of The Big Tax case, although this appears to have happened in the Lord Nimmo Smith enquiry into incorrect player registration.)

The process leading to this £2.8m assessment began in November 2010 after an FTT found in favor of HMRC against Aberdeen Asset Management who had been operating a similar scheme. The FTT decision was not itself a precedent as such at that time, although after AAM put in an appeal that was subsequently rejected in 2011 by a UTT, it became so.

Based on the AAM FTT decision HMRC presented a computation of £2,827,801 tax due to Rangers in February 2011. Apart from it arising from an FTT decision in favor of HMRC what influenced the advice given to Rangers by their legal adviser on tax matters to accept the assessment was the knowledge that in 2005 HMRC had asked Rangers/MIH if any side letters existed relating to undertakings made by Rangers in respect of the DOS and Rangers covered up their existence saying none could be found. It was thought by the tax adviser that the failure to reveal the existence of the side letter would undermine any appeal and the advice to Rangers in early March 2011 was to settle rather than risk additional costs. On the third week in March 2011 agreement was reached between Rangers and HMRC in principle on the amount to be paid. Thus, having accepted the debt in principle the wee tax bill found its way into Rangers accounts presented on 1st April 2011 to the surprise of many unaware any issue existed.

(Walter and Jesse Start Cooking and Pouring)

Craig Whyte took over Rangers on 6th May 2011 and on 11th May a meeting took place between Rangers representatives and HMRC whose position was that they would not allow procrastination of the £2.827M DOS or conflation with the more widely known Remuneration EBT case and would add penalties if procrastination happened although an up front payment might mitigate the size of any penalty.

(The Pour Crystallises.)

On 20th May 2011 HMRC sent Rangers a determination for payment of £2,827m. As far as HMRC were concerned the sum was now due if not yet overdue but on 2nd June HMRC had a demand served on Rangers by Sherriff Officers suggesting HMRC viewed the payment as overdue by that date. HMRC seemed determined not to allow procrastination and for HMRC the bill crystallised on 20th May 2011, if not actually in the third week of March when agreement reached in principle. .

It is difficult to accept that when conducting the club licensing process that ended with a licence being granted by 31st May 2011, which in turn provided Rangers with access to the Champions League, that the SFA were unaware from 1st of April 2011 of the “wee tax bill”. It had been the talk of the steamie when it appeared in Rangers audited accounts, but the SFA apparently saw no reason to delay granting a licence by the end of May under Article 50 of UEFA FFP when the licensing process finishes in Scotland before moving over to UEFA. With such an amount of taxpayers’ money at stake it would have seemed incumbent upon the SFA to establish with HMRC the reason for the bill being raised and HMRC’s position on payment before granting any licence. It is not clear if this was done or that the only communication that took place was between the SFA and Rangers.

By the 30th June however, after the bill had crystallised, the SFA were required under Article 66 of UEFA FFP to notify UEFA of any “overdue payables“to tax authorities by licensees (Rangers).

(Subsequent Wheeling and Dealing)

When pressed on the matter of granting a license in December 2011, Stewart Regan said on Twitter

“The licence was granted in line with SFA and UEFA guidelines. The tax matters had not crystalised at the point it was granted.”

He also used “the licence was granted in line with SFA/UEFA guidelines” approach in a letter in September 2011 responding to an enquiry asking how a licence was granted when a bill that required Sherriff Officer’s intervention in early August was clearly outstanding.

However it can be seen from the foregoing that as far as HMRC were concerned the tax bill had crystalised well before 30th June, the date by which UEFA deemed a payment to be an overdue payable (unless it was covered by the criteria described later) and that HMRC had resisted any attempts to wrap settlement up with the entirely different EBT (Big Tax Case) FTT result. Why should they? The wee tax case had already cleared an FTT hurdle and Rangers had had expert advice to settle.

(Make no mistake here, payments under DOS were irregular. This raises questions of the application of Lord Nimmo Smiths judgment to payments from 2000 to 2003, that appear to have been treated as if arising under the Remuneration Trust (EBT) arrangement which LNS deemed regular payments for the purposes of his enquiry, when in fact the payments under DOS did not involve loans at all and should not have been viewed in that context, but as irregular payments using side letters that Rangers had concealed from HMRC when asked and of course the SFA. This flaw in the Lord Nimmo Smith enquiry re registration payment from 2000 to 2003 appears to have been lost in the puzzlement at his conclusions, based on evidence by Sandy Bryson of the SFA, that put the football law in Scotland at variance with FIFA registration requirements, an issue that will eventually require addressing)

So Mr. Regan was at best misleading, if not wrong to use the term tax matters to conflate two separate issues and whilst he was arguably correct to say that when the license was granted in April/May 2011 under Article 50, that the wee tax bill had not actually crystalised by 31st March, (although HMRC might differ, he neglected to add anything about adherence to subsequent SFA/UEFA regulations and later drafted an attempt to explain what did happen in a way that might be accepted that those regulations were complied with, a move that did not reach public knowledge at the time.

So what of his insistence that the licence was granted in line with SFA and UEFA guidelines, (a line he stuck to in a recent telephone call in August 2013 on the matter?)

There are three key dates for the annual UEFA licensing process that enables clubs put forward by their national association to play in UEFA competitions each season. The dates and relevant UEFA articles in respect of overdue payables to social/tax authorities that govern the process are:

1. 31st March under Article 50 No Overdues payable (by 31st March) to Tax Authorities
2. 30th June under Article 66 No Overdues payable (by 30 June) to Tax Authorities.
3. 30th September under Article 67. Duty to report subsequent events.

The criteria that defines what is not an overdue payable can be found in Annex VIII to Articles 50/66 and this is used for ease of presentation in the following paragraphs with the conclusions appearing after the relevant rules paragraph in blue with summary of all main conclusion at the end.

ANNEX VIII: Notion of ‘overdue payables’ (taken from UEFA FFP 2010 the relevant regulations at the time. See Note re para (d))

1. Payables are considered as overdue if they are not paid according to the agreed
terms.
Conclusion. Had they been paid according to the agreed terms there would have been no questions to answer.

2. Payables are not considered as overdue, within the meaning of these
regulations, if the licence applicant/licensee (i.e. debtor club) is able to prove by
31 March (in respect of Articles 50) and by 30 June and 30 September
(in respect of Articles 65 and 66) respectively that:

a) it (Rangers)has paid the relevant amount in full; or

• Conclusion. No payment made by 31 May, or 30th June, although an unproven £500k down payment was claimed to have been made at the 30th September checkpoint, thus Item is an overdue payable under a)

b) it (Rangers) has concluded an agreement which has been accepted in writing by the
creditor to extend the deadline for payment beyond the applicable deadline
(note: the fact that a creditor may not have requested payment of an amount
does not constitute an extension of the deadline);

• Conclusion. No agreement to extend payment deadline accepted by HMRC in writing or any form, quite the reverse with HMRC pursuing payment so item is an overdue payable under b)

or

c) it has brought a legal claim which has been deemed admissible by the
competent authority under national law or has opened proceedings with the
national or international football authorities or relevant arbitration tribunal
contesting liability in relation to the overdue payables; however, if the
decision-making bodies (licensor and/or Club Financial Control Panel)
consider that such claim has been brought or such proceedings have been
opened for the sole purpose of avoiding the applicable deadlines set out in
these regulations (i.e. in order to buy time), the relevant amount will still be
considered as an overdue payable;

• Conclusion No claim (appeal) made until after 20 September 2011 which HMRC intimated they would reject and which the Club Financial Control Panel might consider on evidence shown was done to overcome deadlines, at 31 March and 30th June and most likely 30th September, so item is an overdue payable under c).

or

d) Rangers has contested a claim which has been brought or proceedings which have
been opened against it by a creditor in respect of overdue payables and is
able to demonstrate to the reasonable satisfaction of the relevant decision making
bodies (licensor and/or Club Financial Control Panel) that the claim
which has been brought or the proceedings which have been opened are
manifestly unfounded.

• Conclusion. Claim brought by HMRC and well founded so item is an overdue payable under d).

Note Para d has been changed in UEFA FFP 2012 but even had it applied in 2011 Rangers had not established valid reasons for contesting the claim or proceedings (HMRC having rebuffed attempts) which had been opened by HMRC against it in respect of the tax bill in question. However the Conclusion above is unaffected either way as it refers to the rule in place in 2011.

(Payoff)

Thus by 30th June 2011 the bill had crystallised and did not meet any of the criteria for exclusion under Article 66 of UEFA FFP as defined in Annex VIII. However not only was licence granted, any requirement to provide future financial information that would have told UEFA AND the SFA that Rangers were in very serious financial difficulties was removed and with it the protection the tax player should have enjoyed from further losses.

Rangers were also required under Article 67 “Duty to Report Subsequent Events” to promptly tell the SFA of any significant changes but thanks to the level of clearance given at the Article 66 stage after 30th June when the need to provide future financial information was avoided only a simple statement was sought by the SFA. A statement in which Rangers said a £500k payment had been made to HMRC but no evidence that payment was made appears in later HMRC correspondence.

What is interesting is that again in December 2011 in response to pressure on the SFA to explain how the UEFA licence was issued and long after the “not crystalised” response could no longer be applied, Mr Regan tried to explain the goings on between Rangers and HMRC since May 11th to justify applying Annex VIII criteria by applying the term “ongoing discussions” to cover them, in a draft he asked Rangers to clear! This caused consternation at Ibrox as it would draw public attention back on the issue; raise questions as to why the bill had not been paid, thus indicating cash problems at Ibrox in public. It would also bring focus on the SFA role in issuing the licence from 31st May which none of the parties wanted. However it was all sorted out over dinner during the Christmas period with Mr Regan and Mr Ogilvie and Rangers representatives……

Conclusion

• The DOS tax bill for £2.8M was overdue by 31 May 2011/2nd June and remained so during 2011 becoming an overdue payable on 30th June 2011 and should have been reported as such by SFA to UEFA under Article 66.

• The SFA argument of September and December 2011 respectively that proper licence granting process had been followed

• and

• That the bill had not crystallised at the time of granting the UEFA licence in May 2011 using 31st March as the effective date under Article 50 was arguably factually true but it ignores the later check points of 30 June and 30 September, by which time the item was way overdue with absolutely no justification for being so.

• “Ongoing discussions” were not a reason to allow the licence to stand at 30th June and on the evidence simply looks like a device to stall paying and keep UEFA onside.

• The release notified in September from the need to provide future financial information to UEFA at a time when HMRC were asking for the same kind of information, combined with the tone with which such information was passed to Rangers by the SFA, asks serious questions of the SFA’s understanding of the purpose of club licensing and the SFA’s understanding of their responsibilities to the UK tax payer, who lost £2.8m because SFA failed to make payment a condition of granting and retaining the licence. It also begs the question exactly what did the SFA tell UEFA that UEFA released Rangers from the need to provide future financial information and did UEFA ever confirm in writing?

• The non payment of such an important item in terms of loss to Rangers of CL money if a licence had not been granted, had the SFA insisted on payment of the £2.8 million before 31st May, should surely have rung alarm bells with the SFA that Craig Whyte had insufficient funding to keep Rangers alive?

• By ignoring the ongoing non-payment by 30th June the SFA arguably could have put UEFA competitions in 2011/12 at risk as well as failing to protect the UK taxpayer from subsequent losses on tax and NI by a club struggling to stay alive.

Postscript

In 2003 the Discount Option Schemes were officially declared illegal because of the shams that they were. At that point rather than look at their policy of using dodgy means of dodging tax, Rangers moved on to another dodgy means, the “loan” based EBTs that the UTT will rule on in the coming months. The common factor in both EBT schemes is side letters were used. In the DOS case Rangers lied about their existence, in the EBT case they just kept their existence hidden from the authorities, including the Scottish Football Association, whom we are asked to believe were unaware of Rangers use of EBTs in spite of Rangers officials serving on SFA committee positions. We are asked to believe a lot by the SFA, the biggest stretch of credulity being that they can be trusted. The way in which the SFA dealt with the wee tax case in 2011 to protect Rangers at taxpayers’ expense was an indicator of what was to come when they and Mr Doncaster (CEO of the SPL) tried to parachute the successor club following Rangers liquidation into the SPL top tier in the summer of 2012, a move thwarted by Scottish football supporters who valued sporting integrity over and above commercialism and unfairness.

The wee tax bill of £2.8m (plus penalties added in 2011) resulting from tax evasion that competing clubs were unable to benefit from because it was unlawful and irregular, remains unpaid.

In spite of gross errors of judgment in handling Rangers downfall, Mr. Ogilvie, Mr. Regan, and Mr. Doncaster remain in post; the latter two at least with pay rises….

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14 thoughts on “Crystal Myth (The Untold Story of the Wee Tax Case)

  • 13 October, 2013 at 10:05 pm
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    I don’t know if you drink, but if you do I’d like to buy you a drink. Indefatigable and to be admired for it.

    You make me examine my own input.

  • 13 October, 2013 at 11:22 pm
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    What can Celtic hope to achieve beyond exposing further cheating by Old Rangers and corruption within the SFA. Is there a realistic possibility we could be awarded some form of compensation for being denied a possible Champions League campaign?

  • 14 October, 2013 at 12:50 am
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    The whole things stinks to high heaven! As much as the situation makes me angry the most galling aspect of it all, IMO, is the silence from all other football clubs? Why have fans of all other clubs not banded together to force the SFA into making an announcement in this regard and also an expanation is beyond me? Is it only us internet bampots who thinks that this situation is disgusting?

    Great read as always btw! Lays it all out in a manner that even Conflicted Opportunism could understand! HH

  • 14 October, 2013 at 2:15 am
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    even i can understand all that ,how any judge can’t, well let me think
    for a second or two

  • 14 October, 2013 at 8:20 am
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    Just one question. You write at first the wee tax case was tax avoidance and in the second to last paragraph you write tax evation, is that because it was deemed illegal at some point after it was used?

  • 14 October, 2013 at 9:05 am
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    Sean..What can Celtic hope to achieve ….I,m afraid they want to ignore it,they wanted it to go away.Why could that be……The old way of doing things aught to be over,it,s a different world corruption,hand shaking,Media back scratching,Tax dodging shine a light on it all.The 3 amigos Ogilvie,Doncaster,Regan get them all out,Their friend Bryson should go also…..Echo,s of the Cadette affair,the bosses head rolled in that famous case.Oh for a man like Fergus to fight our corner.No one in this day and age seems to have the stomach to fight for the fans.Make no mistake if it were not for the Celtic fans……..None of this would ever seen the light of day.

  • 14 October, 2013 at 10:23 am
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    Justafan

    Yes the DOS scheme like the EBT loan scheme, which is tax avoidance at this time unless the UTT says otherwise, was tax avoidance when it was adopted in 1999.

    The Scheme itself was abused and led to it being made illegal which I think happened in 2003 which is when De Boer was switched to the EBT arrangement.

    HMRC subsequently pursued organisations that used DOS incorrectly as Rangers had done, which eventually produced the wee tax bill.

  • 14 October, 2013 at 2:07 pm
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    Unfortunately, there appears to be no authority left which has not dipped it’s claws in this widespread corruption. That being the case, (along with apathy amongst the other clubs) we are left with two options: 1. We draw a line in the sand and move on. 2. We accept that a fair and balanced game can never occur in Scotland due to the superiority and enhanced entitlements of certain other elements, rendering the game finished.

  • 14 October, 2013 at 10:04 pm
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    Looks like Celtic played Juniho for three years owing money to HMRC…….

    From the BBC

    Celtic confirmed that it established one EBT scheme in April 2005, which BBC Scotland understands was for the benefit of the Brazilian midfielder Juninho Paulista. The scheme was worth £765,000 but the club did not declare the trust payment to the Scottish Football Association or the Scottish Premier League.

    The payments made to the trust were declared in Celtic’s annual report for 2004/2005, but in 2008 the club became aware of an event giving rise to a potential tax liability which was subsequently paid after agreement with HMRC.

    Will celtics opponents be due reparations for playing a player they couldn’t afford during these times?

    The old firm…..
    The sooner you both leave scottish football and take your poision with you the better for the rest of us.

    Paul McConville wrote an interesting article a while ago suggesting Celtic do the right thing and surernder all the points won in games that juniho played in. Maybe that would be a more worthy AGM resolution for the fans to propose.

  • 14 October, 2013 at 10:06 pm
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    That’s a pretty pitiful response, to be honest.

    Celtic declared that scheme, in full, to the SFA AND they paid their bill.

    See the difference?

  • 14 October, 2013 at 10:31 pm
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    Jouninho came from Middlesboro with an E.B.T. Celtic told him that they did not deal with them and told him to cancel it and Celtic cleared the debt. This fact has been stated publicly UMPTEEN TIMES!

  • 15 October, 2013 at 5:28 pm
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    What has this to do with Celtic Football Club though ?
    Surely what one would refer to as ‘good and proper’ CFC supporters with the Clubs’ Best interests at heart will/would want Nothing whatever to do with Rangers Football Club ? Thus separating themselves from the more delusional, obsessed types who continually behave in such a poor manner so as to have the CFC laughed at with pointed fingers from other Clubs’ fans all around Great Britain and maybe even further afield ? CFC fans would be far better off grabbing the attentions of the board at their next AGM by getting a motion on whether one of the major stockholders will bring more shame on the Club by his other activity involvement including poorly ran old folks homes and more recently, a betting scandle firm down in Austrailia ?
    Maybe raise again the quite appalling chanting in favour of murdering terrorists which is outlawed and as to what as a Club such as is will be doing to eradicate it and that of the flying an Irish Tri-colour, which is in point of fact an illegal act here in Scotland… not to sure about the other counties within Great Britain though ?

  • 15 October, 2013 at 9:19 pm
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    Thanks auldheid for clearing that up.
    One other question, how many times are my fellow fans gonny bring up the celtic ebt, everyone knows whathappened and it was sorted soon as. now stop the tit for tat shite its a waste of time and effort. Its all done now and the fight for our future should be all that concerns you!

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