McLaren gets corporation tax back on 2007 spygate fine

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.

A McLaren spokesman said: "McLaren Group is a successful UK company, which provides high-quality employment and substantial tax revenue.

"In 2007, McLaren Racing Ltd was required to pay a penalty, following a breach of the International Sporting Code of the FIA. After consideration, a Government tribunal has found that such a contractual penalty is tax-deductable. As a UK-registered company, McLaren will continue to comply with all relevant legislation."