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JP Morgan nears settlement with HMRC

10th Dec 2012
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US bank JP Morgan is getting close to reaching a £500m settlement with HMRC to pay back taxes from an offshore trust for bonus payments.

As reported in the Financial Times, the bank has asked more than 2,000 current and former staff to contribute a percentage of the amount owed to HMRC.

The Jersey-based trust in question was established 20 years ago and is now being wound up. It is unclear how much money is in scheme, however it is estimated to have held between £2bn and £9bn, which would therefore equate to a tax bill of at least £1bn.

The deal with the government is likely to represent around half of that amount.

A JP Morgan spokesperson told the FT: “Our employee trust has always been transparent to HMRC, and its independent trustee has consistently paid taxes in accordance with UK tax law,”

JP Morgan also said that in addition to taxes paid by the trust, it has paid more than £1bn of corporate and payroll taxes to HMRC annually over the past decade.

Employee benefit trusts (EBTs) have in the past allowed companies and staff to avoid paying employer’s NICs and income taxes. The EBT holds bonus payments, which cannot be repatriated without triggering a tax payment, but employees can take interest-free loans from the trust on an unsecured basis.

An HMRC spokesperson told AccountingWEB that it was unable to comment on individual cases, but added that EBTs can be legitimate tools to reward employees. In the last decade, however, they have increasingly been used as a way of trying to avoid obligations to account for PAYE and NICs:

“Our view is that a large number of EBT schemes didn’t work under the previous legislation; where that is the case we have challenged and are continuing to challenge them.

“Any scheme that involves concealing or providing false information will amount to tax evasion which can lead to severe financial penalties or a criminal conviction,” the spokesperson added.

JP Morgan trustees have been asked to participate in a “blind auction”, in which they would volunteer to pay a tax rate of their choosing, with a deadline set for this Friday.

Several participants are reported to have volunteered to pay tax at a rate of 40%.

The JPMorgan case comes just days after Starbucks agreed to pay a £20m “voluntary contribution” in corporation tax following increasing public pressure, regardless of whether the multinational makes a profit in the UK over the next two years.

Rangers Football Club also recently won a case against HMRC over its use of EBTs.

The decision was not unanimous with one of the three members of the tribunal dissenting from the verdict.

However the ruling [TC02372] said: “The majority view reflects the argument that the controversial monies received by the employees were not paid to them as their absolute entitlement. The legal effect of the trust/loan structure is sufficient to preclude this. Thus the payments are loans, not earnings, and so are recoverable from the employee or his estate."

HMRC is now in the process of seeking leave to appeal the decision.


Replies (2)

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By carnmores
11th Dec 2012 14:38

i wonder what happens to those @JPM

who do not wish to make a 'voluntary' contribution

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By asking
13th Dec 2012 16:24


if they do not contribute, the EBT asks for a full repayment of the 'interest free loans' they received over the last 20 years!

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