HM Revenue and Customs has won a legal victory over two banking giants, after the Supreme Court ruled that Deutsche Bank and UBS must pay taxes on bonuses paid to their investment bankers.
The tax authority challenged the legality of two offshore schemes designed by the banks to avoid paying tax on bankers' bonuses. Instead of direct bonus payments, the schemes, which ran from 2003 to 2004, saw investment bankers receive shares as restricted securities, meaning they escaped income tax.
HMRC calculated that the arrangements were designed to avoid around £135m in tax and the Supreme Court – the UK's highest legal authority – this week overturned an earlier Court of Appeal decision backing the banks' position.
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Supreme Court justice Lord Reed said the conditions UBS had attached to the shares "had no business or commercial rationale beyond tax avoidance", and said the Deutsche conditions were “simpler but equally artificial".
HMRC's director general for enforcement and compliance Jennie Granger (pictured) welcomed the ruling, which comes after high-profile public criticism of HMRC over a tax settlement it reached with search giant Google.
"This is the latest in a series of successful HMRC challenges to such schemes marketed at wealthy individuals to get out of paying tax," she said. "We will continue to challenge artificial arrangements such as these in the interests of the vast majority of businesses and people who choose to play by the rules."
In a statement, UBS said: "This matter concerns a disagreement over the interpretation of highly technical tax legislation and dates back to a one-off compensation plan for 2003. While we are disappointed with the outcome, we are grateful to the Supreme Court for their careful consideration of the issues."
A spokesperson for Deutsche Bank said: "We note today’s decision and can confirm that all tax and national insurance due as a result have already been paid."