GE Accused of Misleading U.K. Tax Agency in $1 Billion Dispute

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General Electric Co. misrepresented transactions with an Australian subsidiary to secure a U.K. tax deduction, British authorities allege in a case that could cost the company $1 billion.

Her Majesty’s Revenue and Customs is arguing in a London court that GE knowingly failed to indicate the purpose of the Australian investment during tax settlement talks in 2005 and that it made a “deliberate decision” to provide some information that was “simplified” and “misleading.”

HMRC said the transaction was part of an intra-group refinancing operation where GE routed as much as $4.9 billion between subsidiaries in Luxembourg, the U.K., Australia and the U.S. HMRC says the main purpose of the transactions was to gain a tax advantage and that the company didn’t make that clear to it in 2005.

GE denies wrongdoing, and said that at no point in the settlement discussions did it say that the purpose of the Australian investment was solely commercial.

It says that the tax agency is trying to change its arguments now that the case has reached court.

“Whereas HMRC’s current claim is for innocent misrepresentation, their proposed new claim alleges both negligent and fraudulent misrepresentation,” the company said in its court filings.

GE joins a growing list of major American companies battling with tax agencies in Europe. Amazon Inc. was asked to pay 250 million euros ($280 million) in back taxes to Luxembourg and Apple Inc. was presented with a 13 billion-euro bill by the European Commission in 2016. Starbucks Corp. has also been targeted.

In written submissions, HMRC alleged that during the talks, GE representatives “overstepped the mark” between robustly making the company’s case and “saying something that they knew was not true and which they thought HMRC would never be able to discover was not true.”

HMRC said GE presented the Australian investment as solely a commercial decision and not motivated by an attempt to avoid taxes, which GE denies. HMRC also said GE failed to disclose complete information about where the money was going ultimately.

“This whole thing was set up as a tax scheme, to gain a tax advantage,” HMRC attorney Philip Jones said in court.

HMRC said it won’t comment on the ongoing case.

GE rejected the allegations.

“This hearing is a procedural step in an ongoing legal process,” a company spokeswoman said in an email. “GE complies with all applicable tax laws in every country where we do business.”

In its court filings, GE denies misrepresenting the transactions. HMRC twice referred the transactions to its fraud investigators, but each time they didn’t find grounds to investigate, GE said.

GE said in a quarterly report in 2018 that HMRC disallowing the tax deductions in question could cost it as much as $1 billion.

HMRC is seeking to amend a claim it made against GE in 2018 over tax deductions, for a trial planned for October 2021.

©2020 Bloomberg L.P.

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