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Friday, 31 May, 2002, 17:18 GMT 18:18 UK
Ruling 'could cost Al Fayed millions'
Supreme Courts sign
The ruling was made at the Court of Session
Harrods owner Mohamed Al Fayed has lost a legal battle to retain his special tax status in a ruling which could cost him millions of pounds.

The ruling against Mr Al Fayed and his brothers was made at the Court of Session in Edinburgh on Friday.

Lord Gill said the Inland Revenue was wrong to agree a "forward tax" agreement with the multi-millionaire in 1997.

He said this had given Mr Al Fayed "carte blanche" to pay off the tax man - then bring as much cash into the UK as he wanted.

Harrods owner Mohamed Al Fayed
Mr Al Fayed challenged the decision
"In a true sense the Al Fayeds thereby became a privileged group who are not so much taxed by law as untaxed by agreement," said Lord Gill in his written judgement.

The judge criticised the Inland Revenue for putting rich foreigners outside the tax system and failing in its statutory duty to collect as much tax as possible.

The Court of Session heard that under the deal reached in 1997, Mr Al Fayed had promised the Inland Revenue 240,000 a year for five years.

This was accepted because it avoided the need for a long, expensive investigation of the Egyptian's income from abroad.

However, the agreement was torn up by the Inland Revenue following evidence given by Mr Al Fayed during the Neil Hamilton libel trial in November 1999.

Followed with interest

He told that trial that he had access to large sums of cash and said employees received large cash presents.

This evidence was "followed with interest" by the tax man and their Special Compliance Office, based in Edinburgh.

"It seems fairly clear that by the end of 1999 there was a general feeling among the senior management of SCO that they did not have a complete picture of (Mr Al Fayed's) financial affairs," said Lord Gill.


The Al Fayeds became a privileged group who are not so much taxed by law as untaxed by agreement

Lord Gill
The agreement was cancelled and Mr Al Fayed's 240,000 cheque was returned, but the Harrods owner then sought a judicial review.

He asked the Court of Session to rule that the Inland Revenue had to abide by the agreement.

However, the Inland Revenue argued that it should not have to stick to the deal because it was outside its proper powers.

Its own lawyers said it should not have entered into the deal because it did not have enough information about money coming to the Al Fayed family from abroad.

Mr Al Fayed's lawyers said the agreement was valid and argued that suddenly cancelling it was an abuse of power.

Important reason

Lord Gill rejected this argument and said the agreement was not based on any objective calculation of tax risk.

"It was little short of a random figure accepted as an alternative to the possibility of there being appropriate arrangements that would avoid any liability to tax at all," he said.

"That, in my view, is an important reason why the agreement was invalid."

Mr Al Fayed said he and his brothers were extremely disappointed by the judgment and are now considering an appeal.

He stressed that he had always paid his taxes and had contributed millions of pounds to the Exchequer every year through his businesses and employees.

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