Bank claims tribunal victory over tax avoidance scheme

UBS could be in line for a £50m windfall after the Swiss bank claimed a court victory in the upper-tier tribunal over an offshore payment scheme it had utilised.

The ruling overturned a previous verdict, which had seen the 400 senior staff pay income tax and national insurance on £92m received in bonuses through a Jersey-based vehicle in 2004, reports The Times.

UBS had paid the tax after losing that case more than two years ago, and could now push for a refund, although HM Revenue & Customs is expected to challenge the ruling. With further similar cases pending, the taxman will not want a precedent set.

The arrangement used by UBS saw 2003 bonuses to bankers paid by awarding them “restricted securities” in a Jersey-based scheme, structured so the bankers would incur a minimal capital gains tax charge – instead of the top rate of income tax – when the shares were redeemed.

While the first-tier tribunal ruled against the scheme in 2010, the the upper-tier tribunal said it was “technically sound”.

Prior to the UBS ruling, the taxman had enjoyed regular success against avoidance schemes.

The ruling comes as figures from law firm Pinsent Masons showed the number of tax avoidance schemes declared to HMRC under the disclosure of tax avoidance schemes (DOTAS) legislation rose 36% last year.

Companies reported 1,862 schemes to the taxman in 2011/12, up from 1,371 in 2010/11 and five times the 371 disclosed in 2008.

The firm also found schemes blocked by DOTAS had fallen to just nine last year, from 18 in 2010/11 and 173 in 2006/07.

Pinsent Masons director Ray McCann said: “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.”