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Could GMC fines be tax deductible?

Most of us here in the UK have never heard of Bradley Birkenfeld, but in the US, he is a whistleblower who turned over information to the IRS about UBS's tax evasion, and was in fact jailed for concealing other information. Clearly you can't please all the people all the time!

However, Mr B sought a reward from the US tax authorities and was awarded $104m (or £64m) for his trouble.

Now that seems a lot of money, and I have never heard of these kind of sums paid in the UK but it is well known that a number of enquiries launched by HMRC in this country are from information received from former spouses with the motivation for revenge rather than than reward. In the US however, rewards such as that paid to Mr Birkenfeld are specifically taxable, so the IRS will get some of its reward back.

Here in the UK, the adage crime doesn't pay was put to the test by McLaren. Back in 2007, the confidential papers on the design of Ferrari's car was found on the chief designer of McLaren.

A consequence of this was that McLaren were fined £32m by the FIA. McLaren claimed the fine as a tax deduction on the basis that it was wholly and exclusively incurred in the performance of McLaren’s business, and rather surprisingly the judge agreed. The important distinction that he made was that the fine was not imposed by an external regulator, but from a body to whose dictates it had agreed to submit as part of its trade and in order to gain income. Does that mean that fines issued by the GMC and the Institute of Chartered Accountants can be tax deductible? Well, on the wording of this case, maybe, depending on the circumstances.

It all sounds rather daft to me. The IRS whistleblower office in the US only collected $48m in 2011, so paying out $104m to Mr Birkenfeld seems excessive. McLaren has been given a fine, but HMRC will reduce the effect by 30%. Am I missing something?


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