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Lloyds Banking Group has been ordered to pay a £1bn tax bill after the UK lender lost the first round of a legal battle with HM Revenue & Customs following losses it incurred in Ireland in the wake of the financial crisis.
In a long-awaited ruling, a tribunal in London dismissed a legal challenge that the bank launched against the UK tax authority concerning its disposal of billions of euros worth of Irish property loans.
Lloyds had claimed tax relief on losses it incurred on the assets, which it inherited as part of its £12bn government-brokered rescue of Halifax Bank of Scotland in 2008 at the height of the financial crisis. Lloyds wound down the Irish bank — which had £24.7bn worth of loans — less than two years later, after it disclosed that 90 per cent of its Irish commercial property loan book was impaired.
HMRC disputes the bank’s eligibility for the tax relief, arguing that the bank’s desire to claim tax relief was behind its decision to exit the market. Two tribunal judges heard the case almost two years ago but they did not hand down their ruling until last month.
Lloyds said on Wednesday that it would appeal the findings to the Upper Tribunal, setting the stage for a protracted legal fight. The case could ultimately head to the UK Supreme Court and take years to resolve.
“We respectfully but fundamentally disagree with the Tribunal’s decision,” the bank said. “The Group is one of the UK’s largest taxpayers, and is at all times committed to paying all the tax that it owes.”
Lloyds contended in the tribunal that its decision to jettison the lossmaking Irish assets had been driven not by tax but by “strong commercial imperatives”.
Lloyds was likely to report a £955mn cash payment to tax authorities in its half-year report in July, one person familiar with the situation said, adding its profits would not be hit as the payment would be offset by a tax-asset.
HMRC said: “We’re pleased the First-tier Tribunal agrees with our position to deny claims for cross-border group relief in this case.”