UK - UK pension schemes stand to keep the abnormal dividends they acquired through company share buy-backs if a pensions scheme ruling is upheld, according to KPMG.
The company’s statement was issued on Wednesday and follows attempts by the Inland Revenue to recover an estimated £200m of tax credits paid to pension schemes between September 1994 and October 1996.
KPMG highlighted the Revenue’s attempts to gain £96,912 of tax credits from the Omega group pension scheme, which it acquired from company share buy-backs carried out in the mid-1990s.
The case was heard by the Inland Revenue Special Commissioners, who found in favour of the pension scheme, and agreed that it should not have to pay the £96,912 it had recovered from participating in a buy-back of Powergen shares in May and June 1996.
The Revenue argued that the scheme had received an abnormal amount by way of dividend and thus had claimed an unreasonable tax advantage. Omega countered that the sales were carried out in the normal course of making or managing investments and did not have obtaining a tax advantage as a main objective.
Although the Revenue has appealed, KPMG believes that if this ruling is upheld, many schemes will win on the abnormal dividend issue.
Steve Roth, a partner at KPMG Tax, said: “The Special Commissioners’ view on what is an abnormal dividend is a victory for common-sense. I have always thought that the Revenue interpretation is far too narrow and hope that on appeal the High Court will reach the same conclusion. Many other cases will then almost certainly be dropped.” By Janet Du Chenne
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