JPMorgan is nearing a settlement with the U.K. government in which the U.S. bank and its employees could pay close to 500 million pounds in back taxes that were avoided through the use of an offshore trust for bonus payments.
The Wall Street bank is in the final phase of winding up the Jersey-based arrangement and has asked more than 2,000 current and former employees to contribute to the settlement. Individuals who choose not to participate voluntarily could face a more expensive tax bill once their trust assets are liquidated.
The case comes at a sensitive time for relations between UK tax authorities and foreign companies operating in Britain. Starbucks on Thursday agreed to pay a 20 million pound tax "donation" following a public outcry over its payment of only 8.4 million in UK corporation tax over a 14-year period.
Trust schemes typically offer twin tax breaks by allowing companies and their employees to avoid paying, respectively, employer's national insurance contributions and income taxes. The trust 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.
Such schemes are being closed following the introduction of new legislation last year to outlaw employee benefit trusts. JPMorgan's Jersey trust had previously operated with the full knowledge and authorization of UK tax authorities.
It is unclear how much money is currently in JPMorgan's trust scheme, which was established 20 years ago. Senior executives involved in the scheme in recent years estimated the amount at between 2 billion and 9 billion pounds. Assuming a standard 40 per cent tax liability and 12.5 per cent rate for national insurance contributions, that would suggest a tax bill of at least 1 billion pounds. However, the settlement is understood to be closer to half that amount.