Dubai-based global port operator DP World has lost a UK court battle to avoid paying £14m ($21.4m) in tax.
P&O, a cruise and ferry business now owned by DP World, was independent in 2004 when it created “an elaborate trick” to reduce its UK tax bill.
DP World, which bought the company in 2006 for £3.9m, unsuccessfully appealed the tax authority’s rejection of the scheme, which was described as "a scripted game of charades".
Known as the "Dear Simon scheme" after a letter at the centre of the case, it was designed to exploit international treaty rules that prevent companies from being taxed in two jurisdictions.
P&O was found to have created artificial UK tax credits for tax payments made by Australian subsidiaries in October 2004.
“It is clear that the scheme would only work so long as every participant in it was either a captive company or a stooge employee of a company within the P&O group,” the tribunal judge, Sir Stephen Oliver QC, said.
"The Dear Simon scheme was designed and implemented for no reason other than tax avoidance. "It depended on the alchemy of turning share capital into distributable reserves almost overnight. The trick was written into the script of the charade."
The verdict is based on legislation that was repealed in 2005.
DP World, the third largest port operator globally and owner of Jebel Ali Port, said it would appeal the tribunal’s verdict.
“This decision relates to a dispute between P&O and HMRC (HM Revenue & Customs) about the double tax treatment of profits repatriated to the UK in 2004, before we acquired P&O in 2006,” a statement says.
“This technical debate involves complex 2001 legislation that has now been repealed. Since the transactions took place there have also been changes to the corporation tax rules on dividends and distributions, with Parliament and HMRC recognising that the law was impractical and unfair, and any company can now repatriate profits from its subsidiaries abroad without giving rise to the problems in this case.
“In light of these facts, we have filed an application for permission to appeal the decision.”
The UK Treasury claims it has recouped £1bn worth of historic unpaid tax by international companies so far this year.