Alex Gerko,
the billionaire behind high-frequency trading giant XTX Markets, is fighting a
£22.5 million tax bill at the UK’s Supreme Court this week, challenging how
British authorities tax complex profit-sharing arrangements in the financial
sector.
XTX Founder Takes £22.5M
Tax Fight to UK’s Highest Court
The two-day hearing
involves Gerko and 12 other former employees of hedge fund GSA Capital who are
disputing how their deferred compensation should be taxed. The case centers on
a profit-sharing scheme that allowed traders to receive up to 50% of their trading profits, spread over three years, while they worked in GSA’s high-frequency
foreign exchange unit between 2010 and 2015.
The dispute
boils down to whether these payments should face individual income tax rates or
the lower corporation tax rates that were initially applied. Tax authorities
successfully argued at lower courts that the traders should pay the higher
individual rates, creating the multimillion-pound bill now under appeal.
“The
judgment results in massive double taxation and has wider implications for the
financial industry,” Gerko said after
losing his Court of Appeal challenge last year. He claimed the effective
tax rate reached around 70%.
Complex Partnership
Structure at Heart of Dispute
The legal
battle stems from an intricate compensation arrangement at GSA Capital
involving a limited liability partnership called HFFX LLP. This partnership
included both individual traders who developed automated trading software and
corporate members, including one called GSA Member Limited.
Under the
deferred payment plan, a portion of traders’ compensation was retained by the
corporate entity and invested in GSA’s own funds. Over three years, this entity
gradually sold the investments and redistributed the proceeds to individual
traders as “Special Capital”.
The tax
strategy aimed to have the corporate entity pay corporation tax on the retained
profits, with individual traders avoiding additional income tax when they
eventually received their deferred compensation. However, HM Revenue and
Customs challenged this approach, arguing the payments should be taxed as
individual income from the start.
Five
Supreme Court justices are hearing the case, which could set important
precedents for how the UK taxes deferred compensation arrangements across the
financial industry. The legal questions involve complex issues about
partnership taxation and whether profits retained by corporate partners should
be treated as individual income when later distributed to employees.
High-Stakes Financial
Impact
The case
involves substantial sums for one of Britain’s most successful entrepreneurs.
Gerko, who has a net worth of £14.9 billion according to Bloomberg, has been
named the UK’s biggest taxpayer in recent years, with estimated annual tax
bills of £664 million in 2023 and £487 million in 2022.
“The
amounts involved are small compared to the billions of pounds in tax I have
paid, and been happy to pay, over the years,” Gerko said following the
Court of Appeal ruling in 2024.
After
leaving GSA Capital in 2015, Gerko founded
XTX Markets, which has grown into one of the world’s largest trading firms.
The company handles daily transactions worth $250 billion across equities ,
bonds, currencies, and commodity markets, competing with giants like Citadel
Securities.
XTX’s
earnings surged 53% to a record £1.3 billion last year, cementing its
position as one of the UK’s most profitable private companies. The firm uses
machine learning technology instead of human traders to execute deals across 35
countries.
Part of Broader Industry
Pattern
The ruling
against Gerko follows a series of similar defeats for high-profile trading
firms in tax disputes with British authorities. In December, partners at
BlueCrest Capital were found liable for income tax on a 2008 compensation plan
after the investment firm lost its legal battle.
These cases
highlight ongoing tensions between financial firms and tax authorities over
complex compensation structures designed to retain talent and defer payments.
The deferred payment plans often include provisions to claw back funds if
regulatory fines are imposed, with one case involving a $100,000 fine that was
returned from a trader’s bonus.
Alex Gerko,
the billionaire behind high-frequency trading giant XTX Markets, is fighting a
£22.5 million tax bill at the UK’s Supreme Court this week, challenging how
British authorities tax complex profit-sharing arrangements in the financial
sector.
XTX Founder Takes £22.5M
Tax Fight to UK’s Highest Court
The two-day hearing
involves Gerko and 12 other former employees of hedge fund GSA Capital who are
disputing how their deferred compensation should be taxed. The case centers on
a profit-sharing scheme that allowed traders to receive up to 50% of their trading profits, spread over three years, while they worked in GSA’s high-frequency
foreign exchange unit between 2010 and 2015.
The dispute
boils down to whether these payments should face individual income tax rates or
the lower corporation tax rates that were initially applied. Tax authorities
successfully argued at lower courts that the traders should pay the higher
individual rates, creating the multimillion-pound bill now under appeal.
“The
judgment results in massive double taxation and has wider implications for the
financial industry,” Gerko said after
losing his Court of Appeal challenge last year. He claimed the effective
tax rate reached around 70%.
Complex Partnership
Structure at Heart of Dispute
The legal
battle stems from an intricate compensation arrangement at GSA Capital
involving a limited liability partnership called HFFX LLP. This partnership
included both individual traders who developed automated trading software and
corporate members, including one called GSA Member Limited.
Under the
deferred payment plan, a portion of traders’ compensation was retained by the
corporate entity and invested in GSA’s own funds. Over three years, this entity
gradually sold the investments and redistributed the proceeds to individual
traders as “Special Capital”.
The tax
strategy aimed to have the corporate entity pay corporation tax on the retained
profits, with individual traders avoiding additional income tax when they
eventually received their deferred compensation. However, HM Revenue and
Customs challenged this approach, arguing the payments should be taxed as
individual income from the start.
Five
Supreme Court justices are hearing the case, which could set important
precedents for how the UK taxes deferred compensation arrangements across the
financial industry. The legal questions involve complex issues about
partnership taxation and whether profits retained by corporate partners should
be treated as individual income when later distributed to employees.
High-Stakes Financial
Impact
The case
involves substantial sums for one of Britain’s most successful entrepreneurs.
Gerko, who has a net worth of £14.9 billion according to Bloomberg, has been
named the UK’s biggest taxpayer in recent years, with estimated annual tax
bills of £664 million in 2023 and £487 million in 2022.
“The
amounts involved are small compared to the billions of pounds in tax I have
paid, and been happy to pay, over the years,” Gerko said following the
Court of Appeal ruling in 2024.
After
leaving GSA Capital in 2015, Gerko founded
XTX Markets, which has grown into one of the world’s largest trading firms.
The company handles daily transactions worth $250 billion across equities ,
bonds, currencies, and commodity markets, competing with giants like Citadel
Securities.
XTX’s
earnings surged 53% to a record £1.3 billion last year, cementing its
position as one of the UK’s most profitable private companies. The firm uses
machine learning technology instead of human traders to execute deals across 35
countries.
Part of Broader Industry
Pattern
The ruling
against Gerko follows a series of similar defeats for high-profile trading
firms in tax disputes with British authorities. In December, partners at
BlueCrest Capital were found liable for income tax on a 2008 compensation plan
after the investment firm lost its legal battle.
These cases
highlight ongoing tensions between financial firms and tax authorities over
complex compensation structures designed to retain talent and defer payments.
The deferred payment plans often include provisions to claw back funds if
regulatory fines are imposed, with one case involving a $100,000 fine that was
returned from a trader’s bonus.
This post is originally published on FINANCEMAGNATES.
