Lloyds facing £54m tax bill after HBOS ruling | Business | guardian.co.uk .
Lloyds Banking Group, which is 43% state-owned, has failed in its latest attempt to avoid a £54m tax bill.
In a new ruling last month, the judge, Howard Nowlan, disagreed with HBOS's argument that the scheme was set up for commercial purposes, saying that emails shown to him "all confirm that this project was the acceptance by Treasury Services of a marketed tax avoidance scheme". The bank said it would appeal the decision.
In May 2003, HBOS Treasury Services held various financial derivative contracts with the American insurer AIG, which had to be bailed out by American taxpayers at the height of the banking crisis last year. Keen to reduce its credit exposure to AIG, HBOS agreed to pay £2.2m to the insurer in return for AIG agreeing to monetise the swaps for £180m.
HBOS set up a new subsidiary called Dorus Investments, which was registered in the Cayman Islands to avoid UK stamp duty, and transferred the swaps to Dorus, which was then sold to Swiss Re for £150m.The scheme was designed to roll a £54m corporation tax liability into Dorus in the expectation that, the buyer of when Dorus was sold, the buyer would "somehow manage ... to make the liability evaporate", the judge said. "Treasury Services would then share the tax benefits with Swiss Re."
HBOS Treasury Services thus recognised a deferred tax asset of £54m and, as a result of the transactions, recorded a pre-tax profit of £9m rather than a loss of £2.2m, the judgment shows.
The judge said he found it "absolutely untenable for it to be suggested that the eventual profit that it was hoped and expected would be made in this case was to be made in any way other than by avoiding the tax that would [otherwise] have been chargeable on a direct re-couponing of the swaps with a third party". Of four disputed issues, Nowlan determined one in favour of the bank and the other three in favour of HMRC.
Good news.
Avoiding tax is not a business objective. It is abuse. Good to see this recognised.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
The good news for the original Lloyds shareholders is that the government is picking up 43% of the cost through their shareholding. The bad news is that this is not business that was conducted by their management, but by HBOS and foisted onto them by the government, FSA, Treasury and their former chairman Victor Blank.