Two out of three judges sitting as the First-Tier Tax Tribunal ruled (145-page / 746KB PDF) that Murray International Holdings (MIH), the then owner of the club, had made the £47.65 million of payments in dispute as loans rather than earnings. It concluded that the company's tax liability as assessed by HM Revenue and Customs (HMRC) should therefore be "reduced substantially", with only some payments subject to tax.
HMRC said that it was considering an appeal.
"We are disappointed that we have lost this stage of the court process and we are considering an appeal," the department said in a statement. "The decision was not unanimous and the diligence of HMRC investigators was acknowledged by the whole tribunal."
Two of the three sitting judges agreed "in principle" that "controversial monies" received by players and staff were not paid as "their absolute entitlement" due to the legal structure used. However, the third judge said that the money received by employees through the trust represented earnings, and was therefore liable to income tax and national insurance contributions (NICs).
Since the payments had been made as loans rather than earnings, as set out in the terms of each EBT, they could therefore be recovered from the member of staff or that person's estate, the tribunal said.
An EBT is a legal structure which can be used to deliver various benefits to employees. They were previously used to enable companies to minimise the income tax and national insurance charges on pay to high-earning employees and directors, as well as allow those companies to claim corporation tax deductions on payments into the trust. However, many of the previous tax advantages of that particular arrangement were removed as part of the 2011 Finance Act.
Tax expert Matthew Findley of Pinsent Masons, the law firm behind Out-Law.com, said that the case was not the first that HMRC had lost on the point. However, the fact that the first-tier tribunal had again refused to regard payments made to a sub-trust as liable to income tax through Pay As You Earn (PAYE) or NICs would be a "cause for concern" for the department, he said.
"HMRC has made it clear that it objects to EBTs being used to provide loans to employees and its desire to recover what it sees as unpaid tax from this structure will not go away," he said. "It must therefore be likely that HMRC will appeal, despite this not being the first time it has failed to persuade a Tribunal that PAYE and NIC should be paid."
"HMRC must, however, start to think about its overall policy in this area given criticism by the National Audit Office (NAO) of its handling of tax avoidance schemes; and revise its EBT settlement facility in line with the law," he said.
In a statement, MIH said that it was "pleased" with the judgement, which "overwhelmingly supports the views collectively and consistently held by our advisers, legal counsel and MIH itself".
"This has been an exceptionally long, difficult and expensive process involving not just the tax tribunal but also significant efforts to resolve the matter with senior HMRC officials on a commercially sensible basis for all parties," the statement said. "We will therefore review the detailed content of the decision with our advisers and legal counsel to ascertain what action, if any, is now required by MIH."
Rangers Football Club was placed in liquidation at the Court of Session last month. The company's assets had been purchased by a new company in June, and the new club was admitted to the bottom tier of the Scottish Football League. The company owned up to £134m to its unsecured creditors when it went into administration, terminating its membership of the Scottish Premier League.