UBS faces an clash with British authorities over its tax bill. The solution is potentially costly for the Swiss bank.

UBS is at loggerheads with British tax authorities over £100 million, according to the «Daily Mail».

Her Majesty's Revenue and Customs objects to a tax declaration made by the Swiss bank, the paper quotes from a UBS U.K. financial report.

Unlike other skirmishes UBS has had with foreign tax authorities, this isn't about British clients hiding assets offshore. Instead, Britain is objecting to how UBS defers tax credits it still has from the financial crisis.

Crisis Aftermath

The bank booked a 375 million Swiss franc again from these tax credits in the first quarter. Past credits have been as high as 1 billion.

UBS' conflict with Britain isn't unusual: the government and foreign firms have long been battling about where to book profits and losses in order to minimize tax bills.

Former British Chancellor George Osborne in 2014 decided in 2014 that banks could offset their previous losses against not more than half of profits, which was lowered to just 25 percent one year later. 

Back Taxes Loom

UBS is one of several firms to still have tax credits, derived from losses during the financial crisis, at hand. When activated, the credits flatter regular business results by dramatically lowering the firm's tax bill.

The Swiss bank's British subsidiary is a so-called limited partnership (Ltd.), which is permitted to utilize tax credits of the parent company, UBS AG. However, HMRC apparently finds the credits UBS would like to draw too high.

According to the paper, UBS could be forced by HMRC to cough up £57 million in back taxes from 2014, and to forgot another £46 million in tax credits for the coming year. The Swiss bank didn't comment.

«Rainy Day» Assets

UBS had hoped to make use of another £1.8 billion in deferred tax assets, the paper reported – a move which HMRC is also seeking to block.

The Swiss bank posted three consecutive years of net losses during the financial crisis. The nearly 30 billion Swiss franc loss was booked in various units of the bank. 

UBS booked the lion's share in the U.S., where credits can be used over a period of 16 years. The bank's policy has been to use the tax credits as a «rainy day» asset to smooth out results if necessary.