In Credit Suisse Securities (Europe) and others v HMRC [2019] EWHC 1922 (19 July 2019), the High Court found that the bank payroll tax (BPT), enacted by FA 2010 Sch 1, did not constitute state aid.
The claim, by four companies of the Credit Suisse group, related to their liability to BPT. BPT applied to ‘relevant remuneration’ (mainly bonuses) awarded by ‘taxable companies’ (mainly banks and building societies) during the period between the date of its announcement on 9 December 2009 and 5 April 2010. ‘In crude terms, it was a tax on bankers’ bonuses.’
Credit Suisse contended that the way in which the tax was imposed, and in particular the limited period of around four months to which it related, meant that in reality it was imposed only on those banks which awarded (or were practically required to award) bonuses during that period. It therefore targeted those with financial years ending on 31 December, since bonuses are awarded around the end of the financial year. Credit Suisse therefore contended that this was a state aid measure because it conferred a selective advantage on untaxed banks, which were in a comparable legal and factual situation. And, as it had not been notified to and cleared in advance by the European Commission, it was unlawful (TFEU Arts 107 and 108).
The court observed that BPT was designed as a short-term measure to discourage banks from paying high bonuses at a time when the government felt that they should be building up capital. BPT was intended as a short term measure, with the primary objective of encouraging bonus restraint before longer term regulatory reforms took effect. The start date was 9 December 2009 (the date of the announcement), as any earlier date was ruled out by concerns about retrospective legislation and fairness considerations, and by the fact that the objective was to encourage a change in behaviour. As to the end date, 5 April 2010, it was thought to be at the end of the main awards season, whilst making the measure time-limited addressed concerns about the potential impact of BPT on the UK’s international competitiveness.
The court also noted that the starting point in determining whether a tax measure is selective is to identify the ‘normal’ tax system. The court rejected the contention that the normal system was the corporate tax system without BPT, as the untaxed banks had no advantage when compared to the taxed banks because their treatment was no better with BPT in place than it was under the reference system. Credit Suisse could therefore only challenge the start and end dates of BPT.
The court observed that, whilst it was a deliberate feature, the limited period of operation was not part of the objectives of BPT. The focus was on bonus awards in the tax year 2009/10 and, for the period of its operation, BPT applied without distinction to taxed banks and untaxed banks. It was therefore not a state aid measure.
The court added that even if BPT constituted state aid, it would not give rise to a claim for repayment of tax as it was not the objective of BPT to provide an advantage to untaxed banks; refunding the tax would not ameliorate any aid.
Why it matters: BPT was a highly unusual tax created in the aftermath of the financial crisis. Therefore, the reasoning of this case is arguably of limited application. Yet the case and, in particular, the analysis of what constitutes the ‘normal’ tax system may be relevant in other circumstances where taxpayers wish to argue that a tax constitutes state aid.
In Credit Suisse Securities (Europe) and others v HMRC [2019] EWHC 1922 (19 July 2019), the High Court found that the bank payroll tax (BPT), enacted by FA 2010 Sch 1, did not constitute state aid.
The claim, by four companies of the Credit Suisse group, related to their liability to BPT. BPT applied to ‘relevant remuneration’ (mainly bonuses) awarded by ‘taxable companies’ (mainly banks and building societies) during the period between the date of its announcement on 9 December 2009 and 5 April 2010. ‘In crude terms, it was a tax on bankers’ bonuses.’
Credit Suisse contended that the way in which the tax was imposed, and in particular the limited period of around four months to which it related, meant that in reality it was imposed only on those banks which awarded (or were practically required to award) bonuses during that period. It therefore targeted those with financial years ending on 31 December, since bonuses are awarded around the end of the financial year. Credit Suisse therefore contended that this was a state aid measure because it conferred a selective advantage on untaxed banks, which were in a comparable legal and factual situation. And, as it had not been notified to and cleared in advance by the European Commission, it was unlawful (TFEU Arts 107 and 108).
The court observed that BPT was designed as a short-term measure to discourage banks from paying high bonuses at a time when the government felt that they should be building up capital. BPT was intended as a short term measure, with the primary objective of encouraging bonus restraint before longer term regulatory reforms took effect. The start date was 9 December 2009 (the date of the announcement), as any earlier date was ruled out by concerns about retrospective legislation and fairness considerations, and by the fact that the objective was to encourage a change in behaviour. As to the end date, 5 April 2010, it was thought to be at the end of the main awards season, whilst making the measure time-limited addressed concerns about the potential impact of BPT on the UK’s international competitiveness.
The court also noted that the starting point in determining whether a tax measure is selective is to identify the ‘normal’ tax system. The court rejected the contention that the normal system was the corporate tax system without BPT, as the untaxed banks had no advantage when compared to the taxed banks because their treatment was no better with BPT in place than it was under the reference system. Credit Suisse could therefore only challenge the start and end dates of BPT.
The court observed that, whilst it was a deliberate feature, the limited period of operation was not part of the objectives of BPT. The focus was on bonus awards in the tax year 2009/10 and, for the period of its operation, BPT applied without distinction to taxed banks and untaxed banks. It was therefore not a state aid measure.
The court added that even if BPT constituted state aid, it would not give rise to a claim for repayment of tax as it was not the objective of BPT to provide an advantage to untaxed banks; refunding the tax would not ameliorate any aid.
Why it matters: BPT was a highly unusual tax created in the aftermath of the financial crisis. Therefore, the reasoning of this case is arguably of limited application. Yet the case and, in particular, the analysis of what constitutes the ‘normal’ tax system may be relevant in other circumstances where taxpayers wish to argue that a tax constitutes state aid.
