Multinational accounting firm PricewaterhouseCoopers (PwC) has failed to stop a tax negligence claim going to trial. The firm tried unsuccessfully to argue that the case was brought after the six-year limitation period had expired.
The claimants were trustees and beneficiaries of a UK trust. In 2000 they wanted to sell shares in a private UK company and took advice from PwC on avoiding UK Capital Gains Tax (CGT) on the sale.
The accountants recommended using a ‘Round the World’ scheme, where the trust was moved temporarily to a low tax jurisdiction to allow for the sale of the shares with no or limited CGT. It would then be moved back to the UK after the transaction had completed, avoiding UK tax.
PwC was advised by a leading QC that Mauritius was the most appropriate jurisdiction as any tax would be charged locally. The accountants decided against this advice and recommended to the trustees that they use Canada instead.
The transaction went ahead in Canada, but in 2005 HM Revenue and Customs opened an investigation into the tax affairs of the beneficiary, seeking around £2 million in unpaid CGT. The investigation between HMRC and the Canada Revenue Agency (CRA) went ahead slowly, but in 2013 the CRA agreed that the transaction should be taxed in the UK under the terms of a double taxation treaty.
The beneficiary settled the resulting tax bill with HMRC. In 2016 the trustees started a negligence action to recover the losses, arguing that PwC should have advised them to use Mauritius rather than Canada.
At a pre-trial hearing PwC applied to have the case struck out because the shares had been sold in 2001 and the six-year limitation period had long expired. However, the beneficiaries contended that the earliest the loss had occurred was in 2013 when the CRA wrote to HMRC. The judge agreed with the trustees and allowed the case to go to trial.
“This ruling does not mean that the trustees have won their claim because it must still go to trial to be decided,” said James Burgoyne, Director – Claims & Technical, Brunel Professions says. “It will be up to the trial judge to not only decide if PwC was negligent in its advice but also if the claim was brought before the six-year limitation period had expired. Nevertheless, the strike out application has failed as it was judged that there was a realistic chance that the claimant might overcome the limitation defence.”
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