Deutsche Bank and UBS must pay taxes on bonuses paid in 2004 to investment bankers following supreme court ruling. For more detail click here
The UK supreme court has ruled that Deutsche Bank and UBS must pay taxes on the bonuses they paid to their investment bankers back in 2004. The arrangement involved bonuses paid to staff via offshore accounts in the form of shares to avoid attracting income tax and national insurance.
It comes at a time when a number of schemes used by companies, and especially banks, are being heavily scrutinised by the tax authorities.
An earlier upper tribunal had described both banks as adopting a “carefully planned tax avoidance scheme which was designed to enable the [banks] to provide substantial bonuses to employees in the tax year 2003/04 in a way that would escape liability to both income tax and national insurance contributions”.
The schemes involved employees receiving shares as restricted securities which would escape income tax. The banks then paid the bonuses into the scheme without having to account to HMRC for income tax or for national insurance contributions for the relevant employees.
It has been claimed at an earlier tribunal that UBS avoided paying £36.9m of tax and £12.7m in national insurance on £92m of bankers bonuses. Deutsche Bank’s scheme centred on £91m of bonuses and some share awards to individual bankers were above £2m.
To qualify for the bonus staff only had to avoid being dismissed, or not resign within six weeks of receiving their bonus shares. After this period, the shares could be redeemed by the employees as cash. In the case of UBS, the restriction involved “a specified rise in the FTSE 100 index” over a three week period which was considered “unlikely to occur”. The UBS scheme was described by Lord Justice Reed as “completely arbitrary” and “having no business or commercial rationale”. UBS has already repaid £50m in taxes, with much of that retrieved from those who benefitted from the bank’s scheme.
Following the Supreme Court decision, HMRC is going to pursue a further £30m in tax from 27 other uses of similar schemes.
Mark Collins is a director who heads up the Employer Consulting Group for Moore Stephens having specialised in all employment tax issues for over 20 years. He can be contacted by email at email@example.com
or by telephone on 0207 651 1468.