Lloyds Appeal Against Tax Avoidance Scheme With HMRC

Date: November 16, 2009

Lloyds TSB banking group has lost a court case over HBOS group worth £54 million in tax. HBOS banking and insurance businesses were taken over by Lloyds TSB on 19 January this year.

The issue goes back to 2003 when HBOS sorted a financial transaction with the failed American Insurer AIG, agreeing to pay AIG £2.2m, which prompted the setting up of a holding company in the Cayman Islands ruled as a manoeuvre to avoid paying UK stamp duty. The company was then sold to Swiss Re and believed that £54 million corporation tax liability would be avoided by dealing with the overseas domiciled company.

In April, Britain’s tax tribunal allowed the bank to carry on with the transaction, however HMRC stated that the overseas company set up was nothing more than an “ruse to avoid tax” and sent the case back to the Tribunal which was ruled within a month resolving in favour of HMRC.  Howard Nowland the judge presiding over the case disagreed with the arguments of HBOS of setting up the overseas company on for commercial purposes and said that all the evidence shown to him confirms that the project was the acceptance by HBOS of a marketed tax avoidance scheme with the purpose of share the £54 of tax benefit with Swiss Re.

Lloyds TSB has denied this argument of tax avoidance and intents to appeal against the decision. An HBOS spoken man said “it always observed the law when it comes to paying tax, we believe we acted entirely properly over the transaction in question. However, we cannot discuss this case further as we are likely to appeal the decision therefore legal proceedings are ongoing.