McLaren have won the right to claim the ?32m fine they received from the 2007 'spygate' scandal as a tax deductible cost against their corporation tax liabilities for that year.

"In 2007, McLaren Racing Ltd was required to pay a penalty, following a breach of the International Sporting Code of the FIA," said a statement from the team. "After consideration, a Government tribunal has found that such a contractual penalty is tax deductible."

The fine was levied by the World Motor Sport Council (WMSC), after McLaren was found to be in possession of a confidential 780-page Ferrari dossier. Then-McLaren designer Mike Coughlan was banned from F1 for two years and sacked by the company for his part in the scandal; he's now returned to the support in 2012 with Williams.

HM Revenue and Customs initially refused McLaren's bid to have the fine be declared as tax deductible, but the Woking company insisted that the fine was a legitimate expense of doing business in F1.

The HMRC resisted this, claiming that the fine could not be considered to be a legitimate expense: "The penalty arose from McLaren's interference with Ferrari's intellectual property," argued the HMRC's legal team. "Such interference was not part of McLaren's trade or incidental thereto."

But the tribunal this week ruled in favour of McLaren, although the two-man tribunal was split and McLaren only won because of the views of the presiding judge in the case.

The verdict outraged one lobby group, the Tax Justice Network, which campaigns for more openness in the tax system and closing of loopholes. Their director John Christensen told the media after the ruling: "From a taxpayer point of view it's extraordinary a company that has been found guilty of cheating can have the fine deducted from their bill so the tax payer loses out as a result of their activities."

The HMRC has the right to appeal and has indicated that it might do so. But according to Ren Reynolds, an expert in legal and ethical implications of technology looking into the ruling and consulted by after the decision was made public, it doesn't look as though the HMRC has much chance of succeeding.

"McLaren's legal team made the kind of straight down the line argument that one would expect," said Reynolds. "And it worked - though by a split decision - so let's not knock it."

The presiding judge's ruling concluded that the ?32m fine 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."

Reynolds explained that the key issue in McLaren's case was that the fine applied by the WMSC was not a criminal or statutory penalty like a speeding fine, but one levied under the Concord Agreement commercial contract that all the teams are required to sign in order to compete in F1.

"It arose out of the contract between them [McLaren] and the sporting body [WMSC], and it was not a 'punishment' but a commercial deterrent," explained Reynolds. "As such it was a risk of and thus an expense of trade."

Reynolds pointed out that the outrage from some third party groups about how McLaren can present a fine as an expense is based on a fundamental misunderstanding of how sport and the law in general interrelate. And in his Terra Nova blog post analysing the case - "Can I get a tax deduction for cheating?" - he discusses how McLaren's legal case might be even stronger than the company and its lawyers.

"McLaren have a sound argument that their acts despite being against the rules can be considered to be within the actual practices likely to be associated with F1 in the real world," he explained. "Thus any resulting fine from a governing body is by definition a cost of trade.

"To put it simply, the sort of conduct that is accepted as part of a gaming or sporting practice is not just that set out by the rules, but also a wide set of acts that are within the tradition of the actual practice of that game or sport," he continued. "That is, there are types of cheating that while outside the rules of the sport are still seen as being within the bounds of that sport."

By way of explanation and comparison, Reynolds made reference to the sport of boxing. He has made a particular study of the legal situation of contact sports where actions that would be criminal outside on the street - such as punching repeatedly someone in the face - are acceptable and even necessary and expected conduct in the sport itself.

"In general the criminal law of most countries will stand to one side and allow those [governing sporting organisations] to deal with the infractions," Reynolds explained. "Indeed the formal structure of sports is designed around explicit and implicit contracts that anticipate rule infractions - hence by contractual definition they are within the definition of the sport, in at least one sense."

That interpretation of the law could give McLaren another plank on which to defend their tax deductibility case if it proved necessary.

"I suggest there is an overriding argument from the tradition of sports law that the infraction by McLaren is part of the practice of sport and hence constitutes an element of their trade," Reynolds said. "The fact that the fine is not criminal in nature and that no such fine or other [legal] action has been mooted is a strong argument." As well as the fine, McLaren were stripped of all their points in that year's constructors championship as a result of the scandal.



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