Alastair Johnston Confirms The RangersTaxCase Truth

As part of his one-on-one series of interviews with different journalists  yesterday, Alastair Johnston gave an illuminating interview to Michael Grant of The Herald. Link Here

The key text is below, but it confirms the core of what this blog has been telling you:

• The tax tribunal began in October 2010 and ran out of time
• It resumes shortly

However, Johnston gets one critical aspect very wrong and we will discuss this below the interview extract:

Isn’t it true that either Whyte takes over or Rangers are in terrible trouble?
Johnston: “There are other mechanisms that we would like to pursue but at this point in time, as I say, the huge contingent of what HMRC has done is actually the gorilla in the room in terms of us expediting this. The timing is not terrific.”

 You and most of the board couldn’t prevent a Whyte takeover even if you opposed it?
Johnston: “I can sit and scream but I can’t stop it happening. Rangers could face a massive bill at the end of an HMRC probe into the use of trust funds to pay players over a 10-year period.

What is the timescale for learning the final bill?
Johnston: “Unfortunately it could actually go on for a long time. They had a tribunal before Christmas and they didn’t get all their evidence. So, like they do in the law, it is terminated for four months. They are starting again at the end of this month, that will take maybe a couple more weeks, then four or six weeks to come to a decision, then they’ll issue a decision, then they’ll negotiate the decision, see what the impact of it is in real terms – money – and that could go on for months.”

Discussion:
Aside from some vindication, what I find amazing is Johnston’s comment in the last question that “then they’ll issue a decision, then they’ll negotiate the decision“.  Could it be that Rangers’ Chairman is so poorly informed and badly advised that he actually believes this?
Let me be very clear, after the tribunal returns a result, there will be no negotiation. The current tribunal is dealing with only the underpayment and interest portions of the bills. At the request of Rangers FC, the penalty determination was deferred until after the First Tier Tribunal makes a decision.  (This has the advantage of spreading out the timeline and perhaps the day of reckoning, but greatly increases the legal fees for the case).   HMRC does not negotiate underpayment of taxes or interest on that underpayment.

Any stories you might have heard about pennies on the pound deals are either urban myths or are from cases where the law is vague and HMRC can see that there is genuine ambiguity about how much should be paid.  Negotiating tax discounts creates a perverse incentive for tax payers: why pay the full amount on time when I can try to cheat and even if caught, I will pay less and later.  It is nonsense, It does not happen. It will not happen.  Least of all, HMRC will not be heading to the table for talks after having just won a protracted and expensive legal battle.

The only part which can normally be negotiated is the penalty.  HMRC will show leniency towards tax delinquents who wandered accidentally across the line and who are ready to make good on their underpayment and interest.  The highest penalties (75-100% of the core underpayment) are reserved for those who can be proven to have consciously broken the law and who have attempted to deceive HMRC.  Rangers are already in possession of a penalty assessment that is 75% of their £24m core underpayment.

So is Johnston ‘playing dumb’ and trying to make this process sound less threatening, or does he really not understand the what is happening?  Is it really possible that Rangers’ directors have been sleep-walking their way to disaster?  Could Craig Whyte also not have understood how high the stakes were until recently?  Popular culture likes to imagine that “the smartest guys in the room” are making deals and cleverly assessing their every move.  However, I am open to the possibility that there has been monumental ignorance and incompetence on Rangers’ board and their false confidence could have rubbed off on anyone dealing with them.

Another point to address from a different interview, Alastair Johnston repeated his strange assertion that “no one is accusing Rangers of having done anything illegal”.  Yes they are.  Rangers are accused of having broken UK law.  It will take quite a creative definition of “illegal” to say that consciously breaking the law is not “illegal” conduct.  What no one has done is to file criminal charges.  That was at HMRC’s discretion.  HMRC is a revenue collection organisation and usually only brings criminal prosecutions in cases involving lawyers and financial professionals where it is easier to prove that they would have known that they were committing a crime.  The standards of proof in a civil tax tribunal are also a lot lower than in a criminal court.  So, it is extremely unlikely that anyone will be criminally prosecuted in Rangers’ case (unless they commit perjury), but that does not mean that Rangers have not acted illegally. They have.

Whether it is ignorance of  the legal process or an attempt to deceive, Alastair Johnston’s shambollic performance yesterday should send a shudder down the spine of Rangers supporters.  In times of trouble, it is often to the Chairman to whom companies turn for experience, wisdom, and a steady hand on the rudder.  Rangers may be lacking someone to play this role.