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Deutsche Bank To Pay UK GBP200m In Bonus Tax

Monday, February 8, 2010

German banking group Deutsche Bank has announced that it intends to pay around GBP200m (EUR225m) to the British government as a result of the new bank payroll tax.

The bank revealed in its annual results for 2009 that "compensation and benefits" were EUR2.4bn in the fourth quarter of 2009, an increase on the EUR2.1bn paid to staff in in the fourth quarter of 2008, but lower than the EUR 2.8 billion dished out in the third quarter of 2009.

Partly as a result of the UK bank payroll tax, the German bank has changed its compensation structure this year to remunerate more of its staff in deferred compensation. This is in line with the requirements of the German financial regulator, BaFin. The bank has also followed the guidelines agreed at the G20 meeting in Pittsburgh last September.

In total, however, Deutsche paid EUR11.3bn in compensation and benefits in 2009, or 40% of its revenues, only slightly below what it traditionally sets aside for wages and bonuses.

Given that the UK government is forecasting revenues from the tax of about GBP550m, Deutsche bank's revelation suggests that total revenue from the bank payroll tax will be much higher than originally thought.

Deutsche Bank is thus far the only bank to specifically state how much the tax will cost it, although it is anticipated that JP Morgan will hand over about GBP300m to the Treasury as a result of its bonus round. It can be expected that similar sorts of amounts will be paid by other major banking groups operating in the City of London in due course.

The one-off 50% tax applies to bonuses of more than GBP25,000, and was announced by Chancellor Alistair Darling in the pre-budget report last month. It applies to retail and investment banks, including building societies, and to banking groups.

It is being imposed on bonuses paid from the date of the announcement on December 9, 2009, until April 5, 2011, and is designed to encourage banks to use profits to recapitalize following the financial crisis, rather than reward senior staff.