The Boston Consulting Group is threatened with back taxes, interest and penalties. This is not the first dispute with the British tax authorities: the consultants lost in court in January.
BCG: According to a report, the authority is examining whether some of the consultant's partners are considered employees for tax purposes. Photo: Thomas Dashuber for Handelsblatt
Dusseldorf. The British tax authority HMRC is examining the partner structure of the Boston Consulting Group (BCG) and is thus tightening its control of the industry. The Financial Times reported on this.
The authority is therefore checking whether some of BCG's partners are considered employees for tax purposes. The newspaper cites company documents.
If HMRC prevails, BCG could face back taxes, interest and penalties. According to the report, BCG itself writes that this could have a “significant impact” on the finances of the British business. The company has not set aside any provisions. It considers an outflow of funds “not likely”.
Supreme Court ruling
The reason for the review was a ruling by the British Supreme Court this year. The judges unanimously rejected the appeal of the hedge fund BlueCrest Capital. HMRC had sought to tax dozens of BlueCrest partners as employees. The FT puts the case at £200 million.
The ruling affects all companies in the legal form of a limited liability partnership (LLP), including BCG's British business. There were more than 100 members there last year. If managers are considered self-employed partners, the employer's social security contributions are waived.
The British tax authority has since taken tougher action against such models, the newspaper reports, citing tax advisors. The authority is continuing proceedings that it had postponed until the verdict. Several hedge funds, law firms and consultancies wanted to restructure their partnerships and negotiate with HMRC. BCG has commissioned lawyers to examine the application of the rules. These would have confirmed the company's stance. It remains to be seen how high the possible burden would be.
Not the first dispute with HMRC
This is not the first dispute with the tax authorities. In January, BCG lost at the Upper Tribunal, a British tax appeal court. It was about payouts to 63 managing directors and partners.
BCG had classified it as a sale of holdings, which are taxed at a lower rate as capital gains. The court did not see this as real holdings, but as income on which higher taxes were due. The auditing firm PwC developed the model in 2010.
BCG set aside £101.6 million for this in its most recent British financial statements. This year the firm also paid or promised affected partners £128.6m. The partners invested part of it back into the company.
BCG told the newspaper it was complying with all tax obligations and was in discussions with HMRC. It does not provide any further information. HMRC referred to tax secrecy.
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