More than £47m (€53.5m, $60.7m) was paid to players, managers and directors between 2001 and 2010 in tax-free loans using EBTs in Jersey.
The EBTs allowed Rangers Football Club PLC, which entered liquidation in October 2012, to pay loans to employees on the basis that the money would be paid back.
However, HM Revenue and Customs (HMRC) argued the payments were actually earnings and should have been subject to income tax and national insurance charges (NIC).
In a written judgment, the judges agreed, saying:”The sums paid to the trustee of the Principal Trust for a footballer constituted the footballer’s earnings. The risk that the trustee might not set up a sub-trust or give a loan of the sub-trust funds to the footballer does not alter the nature of the payments made to the trustee of the Principal Trust.
“The discretionary bonuses made available to RFC’s employees through the same trust mechanisms also fall within the tax charge as these were given in respect of the employee’s work.
“Payment to the Principal Trust should have been subject to deduction of income tax under the PAYE Regulations.”
‘Wide-ranging implications’
The court’s decision is not expected to have any material or financial impact on Rangers as the club is owned by a different company.
However, the UK tax office said in a statement: “This decision has wide-ranging implications for other avoidance cases and we encourage anyone who has tried to avoid tax on their earnings to now agree with us the tax owed.
“HMRC will always challenge contrived arrangements that try to deliver tax advantages never intended by parliament.”
Legal battle
The long-running dispute kicked off in 2012, when a first-tier tribunal found in favour of Rangers and its liquidator BDO that the payments were not earnings and therefore not subject to income tax and NIC.
An upper tribunal also refused HMRC’s appeal in 2014, but a Scottish court later agreed that the payments amounted to a re-direction of income.
On Wednesday, the Supreme Court unanimously dismissed RFC’s appeal and ruled in favour of HMRC.
EBTs
The result is a major victory for HMRC in its attempts to recoup tax from thousands of other companies which ran EBTs and similar schemes, popular in the late 1990s until 2010 when HMRC introduced legislation to curb their use.
Former chancellor George Osborne announced a crackdown on EBTs as part of the anti-avoidance measures in his 2016 Spring Budget. He said the measures were designed to “stop tax evasion, prevent tax avoidance, and tackle imbalances in the system”.
In 2013, a Scottish Premier League investigation headed by Lord Nimmo Smith found Rangers guilty of not registering players properly and the company was fined.
