Deutsche Bank is supposed to be saving money. Fortunately, it still has enough to keep some of its highest paid current and ex-employees happy.
The German bank, together with UBS, has just been found liable for unpaid taxes relating to a 'tax mitigation' scheme for employee bonuses in 2004.
Twelve years ago, around 40 London-based staff at Deutsche Bank who received bonuses in excess of £2m ($2.84m) were invited to invest them in 'Dark Blue Investment', a £91m Cayman Isles registered investment vehicle. As long as the 40 Deutsche bankers didn't sell their Dark Blue shares for five years, they were able to redeem them, entirely tax free, on 31 December 31. The wait was long, but it was worth it.
As of today, however, Her Majesty's Revenue and Customs (HMRC) is compelling Deutsche to pay £50m in back taxes on its Dark Blue wheeze; UBS is paying a similar fine on a scheme which was spread across a broader number of low earners.
HMRC's decision could have been disastrous for Deutsche's Dark Blue beneficiaries, each of whom would be liable for unpaid taxes of £900k or more. When J.P. Morgan's 'tax mitigation' scheme unraveled in December 2012, the bank made individual employees pay £200k each. Deutsche, however, is reportedly paying the fine itself.
The German bank's kindness may raise eyebrows among its existing employees. Last week, Bloomberg reported that Deutsche is deferring 75% of all 2015 bonuses between €200k (£154k/$219k) and €500k for four years, with tranches vesting equally over that period. If you received a bonus of £250k at Deutsche Bank in London for 2015, you will therefore receive £47k a year before tax and £26k a year after tax (assuming you're taxed at 45%) for every year between now and 2020. And that might be clawed back if Deutsche makes a loss, which is all the more likely when it bails out high earners past.
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