Supreme Court orders Deutsche and UBS to pay decade’s old bonus tax

The bonuses were paid to investment bankers via offshore accounts in the form of shares to avoid attracting income tax and national insurance in 2004.

But HM Revenue and Customs had challenged the arrangements and said tax should have been paid on the bonuses.

The banks had argued that restrictions placed on the payouts meant they were not liable for tax.

The Supreme Court ruled that restrictions placed on the share awards were so arbitrary, and short, that they may as well not have existed.

Under tax rules at the time, shares attracted only a 10 per cent capital gains tax rather than income tax and National Insurance contributions.

In the case of Deutsche Bank bonus shares were awarded to staff through a Cayman Islands company, known as Dark Blue Investments.

To qualify for the bonus payout staff only had avoid being dismissed, or not resign within six weeks of receiving their bonus shares.

After a period of time had elapsed the shares could then be redeemed by the employees as cash.

In the case of UBS, the restriction placed on the share payout involved a rise in the FTSE 100 index over a three week period.

That scenario was deemed by the Supreme Court as “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.

Current UK Business Secretary Sajid Javid was a managing director at Deutsche Bank when the Dark Blue Investments was in operation having joined the bank in 2000.

A spokesman for him had previously said Mr Javid did not personally receive a tax advantage from the Dark Blue Investment scheme.

Meanwhile, two Royal Bank of Scotland executives who have played integral roles in streamlining the Edinburgh-based bank in the wake of the financial crisis - and its £45bn taxpayer bailout - have been awarded shares in the still 73 per cent state-owned lender worth about £1 million each.

Mark Bailie and Chris Marks received 415,076 shares in RBS each after the conditions attaching to awards made before March 2015 were met.

The bank’s chief executive, Ross McEwan, received 18,797 shares, worth about £40,000, under the same programme.

Mr Bailie heads RBS’s Capital Resolution “bad bank” created to house higher risk and capital intensive assets that RBS wanted to offload.

Mr Marks, meanwhile, was appointed head of Corporate and Institutional Banking in February 2015, to lead work on making it smaller and safer after running Capit al Resolution.

The awards vested on Monday, when RBS shares were worth 230.3p. Mr Bailie and Mr Clark sold about 195,000 shares each to meet tax liabilities. The remaining 220,000 shares must be kept for a minimum of six months.