UBS and Deutsche Bank lose bonus tax case

The UK Supreme Court has ruled that Deutsche Bank and UBS must pay taxes on bonuses paid to their investment bankers, in a case that goes back 12 years.

HM Revenue & Customs filed a legal challenge against the banks after it was ruled they did not have to pay taxes on two bonus schemes worth just over £90bn set up at the end of the 2003-2004 tax year.

To avoid paying income tax and national insurance, the bonuses were paid to the bankers in shares through offshore accounts.

The schemes set up by the banks were designed to take advantage of laws meaning that share awards to employees would be exempt from tax when subject to a condition that made them liable to be given up in certain circumstances.

In the case of UBS, Lord Reed – who gave the lead judgement – said the scheme was “completely arbitrary”, adding that it had “no business or commercial rationale”.

The restriction in the UBS case involved a specified rise in the FTSE 100 over a three week period. But the Supreme Court said this contingency was unlikely to occur, and it was also hedged against so that the employees would lose out slightly, but not significantly, if it did .

In the Deutsche Bank case, meanwhile, staff needed to avoid being dismissed or resign within six weeks in order to qualify for their bonus.

Lord Reed said the restrictive condition in the DB case “was simpler but equally artificial”.