Scientology tax victory could cost Revenue millions

The Telegraph, UK/August 11, 2006
By Harry Wallop

The Church of Scientology has won a VAT ruling that tax experts say could cost HM Revenue & Customs "hundreds of millions of pounds".

The VAT Tribunal has ruled that Revenue & Customs has to pay back the organisation at least £4.1m in past payments.

Tribunal chairman David Williams also issued an unprecedented rebuke to HMRC as part of his ruling, calling the VAT authority's handling of the case "frankly inadequate, if not inept".

The ruling is a victory for Scientology, whose members include film stars Tom Cruise and John Travolta.

The tribunal ruled in favour of the Scientologists because of a crucial test case earlier this year involving Michael Fleming, an Aston Martin dealer and descendant of the James Bond author Ian Fleming. His case forced the Government to abandon its position that people could take their VAT claims back only three years.

This case is the first time that the scrapping of time limitations has been tested. Now, in theory, if you have overpaid VAT you can claim back right to when the tax was introduced in 1973. The full amount due to the Church of Scientology has yet to be determined.

The case is the first of hundreds that are likely to go against HMRC and could cost the authority "hundreds of millions of pounds", said Paddy Behan, tax partner at Grant Thornton.

Mr Behan said there were at least 700 and possibly more than 1,000 cases waiting to be heard. He added: "The Scientology ruling is hugely important to us and everybody. We at Grant Thornton have 130 clients resting on this and the Fleming case. Ultimately Revenue & Customs are holding on to taxpayers' money. It was wrongly collected and now has to be returned."

For the past decade the Church of Scientology has battled with the Charities Commission to gain charitable status. In 1999 the commission ruled that it was not a religion and that there was no "public benefit arising out of the practice of Scientology" and turned down its application.

Undeterred, it waged a separate struggle with the tax authorities to be granted tax-exempt status. In 2000 Revenue & Customs finally agreed that it was a not-for-profit body and was exempt from paying VAT. It had arrived in the UK in 1977.

In the UK it operates as the Church of Scientology Religious Education Incorporated, with assets of £18.9m, including donations, according to the latest accounts filed at Companies House. Its members pay for the church's courses, fuelling an annual income of £9.82m.