McLaren deducts the Spygate fine from its taxes
The 2007 espionage case between McLaren and Ferrari concluded with a record fine of $100 million for the Woking team. However, a British court has just ruled that such an amount can be deducted from taxes as it is part of McLaren's activities.
The so-called Spygate affair began when an employee at a photocopy shop in Woking was surprised to be handed a voluminous confidential document bearing the colors of Scuderia Ferrari. It was then proven that Mike Coughlan, then the chief designer at McLaren, had obtained these documents illegally from Nigel Stepney, a Ferrari engineer.
The FIA decided to make an example of this case and imposed a $100 million fine, which McLaren paid to Ferrari. The Italian team then transferred the entirety of these funds to charities to avoid gaining a budgetary advantage over its rivals.
Nevertheless, the sum of $100 million was not fully paid by McLaren. Indeed, they were allowed to deduct their share of the television rights planned for 2007 as well as their transportation subsidies for the 2008 season. This relief came from the fact that the FIA also decided to exclude the team from the 2007 Constructors’ Championship, which affects the distribution of funds by the FOM. In total, McLaren only disbursed “only” $52 million, resulting in a loss of $53 million for their 2007 fiscal year.
The executives of McLaren then considered it a simple expense related to the company’s business activity and thus deductible from its taxes. The British tax authorities obviously did not share this view. Akash Nawbatt, the representative of the tax authority, stated: « The fine resulted from McLaren’s interference with Ferrari’s intellectual property. Such interference was not part of McLaren’s activities. The legal collection of information is part of its activities, but illegal collection was not. This is what McLaren stated before the World Motor Sport Council. »
The discord between the two parties was therefore concluded before a tax court in London, which decided in favor of the British team. As there were disagreements between the judges, it was the president of the court who made the final decision. Charles Hellier thus declared: « This cost was not imposed on McLaren but was an expense it was contractually obliged to pay according to the rules that allow it to conduct its business. It was not the result of an external regulator but of the institution to which it accepted to submit for its business and to generate revenue. The penalty is something that was connected to its activity and was incurred entirely and exclusively in the course of its business. »
This latest statement by Judge Hellier therefore means that McLaren acted in accordance with the Income and Corporation Taxes Act of 1988, which defines all the expenses that companies are entitled to deduct from their taxes. It specifies that these sums can only be deducted if they are “wholly and exclusively for the purposes of the trade or profession” of the company.
This decision has obviously angered the Tax Justice Network, a British organization that seeks to reduce tax havens. Its director, John Christensen, stated: « From the taxpayer’s perspective, it’s extraordinary that a company found guilty of cheating can deduct the fine from its bill. So, it’s the taxpayer who loses because of these activities. »
With the participation of www.Racingbusiness.fr
