Swiss bank, UBS, has won its appeal against the First Tier Tax Tribunal's (FTTT) ruling that the bank was liable to income tax and NIC on an offshore vehicle used to pay bonuses to senior staff. The court victory could now pave the way for UBS to claim a refund of tax of £50 million.
During 2003, UBS used a trust company in Jersey called ESIP to pay over £100 million in bonuses, each of which was at least £20,000. Employees were awarded redeemable shares in the Jersey company and because these shares were classed as restricted securities they would be subject to a minimal capital gains tax charge rather than the top rate of income tax upon their redemption.
In upholding the Swiss bank's appeal the Upper Tax Tribunal (UTT) described the avoidance scheme as “technically sound”. The UTT also said, “In his oral submissions, [HMRC's lawyer] deployed a kaleidoscopic variety of arguments designed to persuade us, in one way or another, that the FTTT's conclusion on this part of the case, if not all of the reasoning by which the FTTT reached it, could and should be upheld. We admire his ingenuity, but are unpersuaded. In our judgment the FTTT's conclusion was in law an impossible one, and there is no proper basis for holding that the scheme fell outside the scope of [the special tax regime].”
This latest ruling is a rare defeat for the Revenue who have been successful of late in challenging tax avoidance schemes.
Deutsche Bank, who ran a similar scheme to UBS, also had an appeal heard by the UTT but lost on a technicality.
It is likely that HMRC will challenge the UBS ruling as similar cases are pending and the Revenue will want to avoid any precedent being set.
In the wake of this ruling comes figures released by law firm Pinsent Masons that reveal the number of tax avoidance schemes declared to HMRC under the Disclosure of Tax Avoidance Schemes (DOTAS) legislation increased by over a third during the last tax year. In 2011/12 companies reported 1,862 schemes to the Revenue compared to 1,371 in 2010/11. In 2008 only 371 schemes were disclosed.
The figures also show that schemes blocked by DOTAS fell from 18 (2010/11) to 9 (2011/12).
Ray McCann, director at Pinsent Masons, told Accountancy Age, “Many of the schemes reported to HMRC are likely to be legitimate and perfectly legal tax planning arrangements. There has been a decline in abusive avoidance schemes as corporates know HMRC is ready and waiting to challenge them, with the full support of the courts."
“Technically Sound” maybe, have these people no shame? An obviously artificial scheme with artificial shares in an artificial company in an overseas tax haven. Hence more legislation, and more work for lawyers – any real wealth being created here?
The title of this article is so triumphant it is sickening. We’re suffering under the worst recession ever, whilst morally bankrupt companies and individuals exploit these schemes. The law needs changing pretty damn fast.
The title of this article was not intended to be triumphalist whatsoever but rather to reflect the set back HMRC has experienced after the department has been successful of late in challenging a number of tax avoidance schemes. Whilst people may wish to introduce a moral argument into tax, Tribunals & courts can only work within the law which is what the FTTT did in this case.
And I see the author falls back on the usual “within the law” argument – I too agree that the choice of title for this piece sounds unreasonably like an expression of fist-pumping joy at highly-rewarded individuals being told its OK to use their position and wealth to avoid their dues.
The “within the law” argument is specious if you consider that the law is increasingly written by lazy, cowardly politicians who purport (as an excusr) to believe in neoliberal “small state” ideologies.
Frankly this article only backs up the idea that those who benefit from tax havens are unlikely to develop a moral dimension to their “tax planning” (I note the euphemisms employed with slight disgust) anytime soon.