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Lloyds bank loses £54 million tax court case

The pressure on Lloyds bank finances continues with news that the company has lost a £54 million court case regarding a tax bill connected to its HBOS subsidiary some years ago. The issue goes back to 2003 and the company's exposure to failed US giant AIG which prompted the creation of an overseas holding company into which derivative instruments were liquidated after HBOS agreed to pay £2.2 million to AIG.

In a complex process, a holding company was set up in the Cayman Islands to allegedly avoid UK stamp duty and was then sold on to Swiss Re. Lloyds bank (or HBOS at the time) believed that a £54 million corporation tax liability would be avoided by dealing with the overseas domiciled company and would effectively "evaporate" when the company was sold on. However, HMRC took an interest in the transaction alleging that it was nothing more than a ruse to avoid tax, something which Lloyds has refuted from day one.

While the £54 million in question was put to one side while the issue was discussed in the law courts, Lloyds bank intends to fight on and appeal against the decision immediately. Whether or not it will be successful is open to debate but this is an issue which has now dragged on for six years and still appears to be no near to a resolution.

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