F1: McLaren gets tax back on 2007 fine

By Jonathan Noble

Friday, October 12th 2012, 03:02 GMT

McLaren has won the right to claim a corporation tax deduction on the £32 million fine that it was handed for its involvement in the 2007 spying controversy with Ferrari.

After a recent appeal hearing in front of judges against the Commissioners for Her Majesty's Revenue and Customs (HMRC), the Woking-based team successfully argued that the fine was 'connected' with its trade so could be put against tax.

HMRC had claimed that McLaren's fine should not be tax exempt because it had been handed to the team for activities that were not directly related to its racing programme.

Its solicitor Akash Nawbatt argued: "The penalty arose from McLaren's interference with Ferrari's intellectual property: such interference was not part of McLaren's trade or incidental thereto.

"The legitimate gathering of information was part of its trade but the illicit gathering of information was not. McLaren had said as much in its submissions to WMSC in the July hearing."

The tribunal's two judges were divided in their opinion over the matter, however, which meant the view of presiding Judge Charles Hellier held sway. He believed the fine could be tax deductible.

In his summary, Judge Hellier stated: "This cost was not one imposed on McLaren, but one which it was contractually obliged to pay under contractual obligations undertaken for the purposes of its trade... the penalty was something which arose from its trade, was connected with its trade and was incurred wholly and exclusively for the purposes of its trade."

The court ruling issued by the tribunal's judges revealed that in the year to December 31 2007, McLaren's turnover was £127 million but it made a loss of £35 million, mainly as a result of its fine.

In 2008, McLaren made a profit of £5 million, while in 2009 it has increased that profit to £50 million.

The exact level of the fine - which at the time was $100 million (USD) minus the loss of commercial revenue from Formula 1 which would be withheld - worked out at exactly £32,313,341.

HMRC has the right to appeal the ruling.

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