Bloomberg News

UBS, Deutsche Bank Fight U.K. on Use of Offshore Trust for 2003 Bonus Plan

March 12, 2012

UBS AG (UBSN) and Deutsche Bank AG (DBK) said they don’t owe taxes over a 2003 compensation plan U.K. authorities argue was designed to avoid millions of pounds in taxes and national insurance contributions on employee bonuses.

The two banks appealed separate rulings that found them liable for income and payroll taxes for bonuses paid to bankers in shares through an offshore trust, in a four-year-old dispute with U.K. revenue officials. UBS owes 49.6 million pounds ($77.5 million) on total bonus payments of 92 million pounds into the plan, according to documents disclosed yesterday after Bloomberg petitioned the court for their release.

The case “concerns a disagreement over the interpretation of highly technical tax legislation and dates back to a one-off compensation plan for 2003,” UBS spokesman Richard Morton said in an e-mailed statement.

The U.K. government is taking “decisive and swift action” to tackle tax avoidance, Chancellor of the Exchequer George Osborne told Parliament this month after authorities closed two tax loopholes that had been used by Barclays Plc. (BARC) Legislators are seeking a tougher approach to companies that hire lawyers and accountants to cut tax bills.

The banks and HMRC declined to provide court documents to reporters at a trial that ended last month. Both sides released papers outlining their arguments yesterday after Bloomberg News petitioned the court.

‘Restricted Securities’

UBS and Deutsche Bank said in the court documents that they didn’t have to pay income tax on the shares because they were “restricted securities” that weren’t eligible for contributions. Both plans involved setting up offshore vehicles that issued securities to employees. The vehicles, which are no longer used, invested in the shares of UBS and Deutsche Bank.

“This was a one-off arrangement from eight years ago and hasn’t been repeated,” said Adrian Cox, spokesman for Frankfurt-based Deutsche Bank. “We believe it met all the requirements at the times.”

Some of the Deutsche Bank bonuses were in excess of 2 million pounds, tax officials said. HMRC didn’t disclose in the documents released yesterday the amount it estimates Deutsche Bank owes.

HMRC lawyer Nikky Fadero said the department wouldn’t comment until the judges released a decision.

“The predominant reason for the ESIP scheme was tax avoidance,” HMRC said in its court filing.

A week-long trial at the Upper Tribunal in London ended on Feb. 28. There is no schedule for a ruling.

To contact the reporter on this story: Kit Chellel in London at cchellel@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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