McLaren have lost a claim that a record 32 million pound fine the Formula One team paid after a 2007 spying controversy should be tax deductible.
Britain's Revenue and Customs (HMRC) said in a statement on Wednesday that an Upper Tribunal, a superior tax court, had ruled in their favour, overturning a 2012 ruling at a first tier hearing that found for McLaren.
"We’re very pleased the Upper Tribunal agrees that the fine should not be given tax relief, which supports our view that most fines are not allowable as deductions against trading income," said Jim Harra, HMRC Director General of Business Tax.
McLaren had argued that the fine, originally set at $100 million but reduced by the loss of revenue resulting from being stripped of all their points in the constructors' championship, was "connected" with its trade and should be exempt from Corporation Tax.
Government officials had claimed that the "illicit gathering" of information was not a part of the team's trading activities.
"McLaren Group is a growing UK company, which provides high-quality employment and substantial tax revenue. We are disappointed by the result of the tribunal and will consider the options open to us," said a McLaren spokesperson.
"As a UK-registered company, McLaren will continue to comply will all relevant legislation."
The fine was imposed by Formula One's governing body, the International Automobile Federation, under Max Mosley after a dossier of Ferrari data was found in the possession of the team's then-chief designer Mike Coughlan.
(Reporting by Alan Baldwin, editing by Tony Goodson)