Is the bonus tax legal?

11 December 2009

3 minute read

As the new tax reality sinks in, questions are being asked over whether the British government is really free to single out banks for special tax treatment.

It's reported today that pre-existing guaranteed bonuses were omitted from the legislation because the government thought their inclusion would contravene the Human Rights Act.

But even with pre-existing guarantees stripped out does the tax infringe UK law or human rights? The answer seems to be possibly, but not in a particularly constructive way.

Firstly, Chris Sanger, head of tax policy at Ernst & Young, says that under UK law the government is given a lot of freedom to apply taxes as it sees fit. He points out that it doesn't bode well that when windfall taxes were imposed in the past (eg. On privatized utilities in 1997), legal challenges were dropped.

Secondly, it's not possible to argue that the mere imposition of the tax is an infringement of human rights under EU law.

On the plus side of the human rights aspect, Stephen Grosz, a partner specializing in human rights law at solicitors Bindman & Partners, says organizations count as people under the EU Human Rights Act. On the minus side, Grosz says there are provisions giving governments freedom to collect taxes as they see fit.

"The convention protects the right to peaceful enjoyment of property and the right to enjoy convention rights without discrimination," says Grosz. "But it doesn't impair the right of a state to enforce its laws to secure the payment of taxes.

"Unless a tax is confiscatory or penal, it wouldn't be a breach of that provision," he adds.

According to Grosz, it's not possible to argue that the tax is confiscatory or penal by virtue of its mere existence. However, it may be possible to argue that it's confiscatory or penal if it applies unequally to two people doing the same role.

For example, if a hedge fund trader or a trader working for a commodities house isn't covered by the tax, but a prop trader or commodities trader working for a bank is, the bank employees could argue that they're being unfairly discriminated against.

In doing so, however, they're simply likely to encourage the government to clarify that the tax covers everyone.

Finally, any claims brought under the Human Rights Act, would (it seems) have to be brought by banks rather than individuals, as it will be banks that pay the tax. And which organization is going to do that?

"It's quite cunning really," says Grosz.

AUTHORSarah Butcher

Global Editor

Ru
Rudi
13 December 2009
It is clear that over the past 15 months the banking system would have collapsed without government, i.e. taxpayers intervention. It is equally clear that banks were only able to generate profits because taxpayers support of the banking system. It follows that taxpayers are morally, politically and legally entitled to a fair share of these profits. Hence the tax on banks bonuses exceeding a certain limit is appropriate and the right thing to do.
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Tr
Trudie
11 December 2009
While I do not believe that tax on any specified income can be deemed illegal under Human Rights Legislation, I am wondering if taking money from UK citizens to pass directly to other countries such as EU or for climate change may be considered a breach of the gvernment's duty to protect our rights as British Citizens and may even be ultra vires as it is not for the good of UK citizens or approved by them in referrendum. In fact it has little to do with the poplation's needs which is the argumemt for most taxes such as those spent on public services.
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Un
Uninterested
11 December 2009
I know some people in this industry have a complete lack of shame and decency but I think people should at least have the decency not to drag human rights into what is a 50% tax on questionnable multi-million payouts to an industry that has received billions of dollars in direct or indirect subsidies.
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