EUROPEAN BANKERS could face heavy unfunded tax bills on their bonuses, under the terms of new EU pay rules published yesterday by the Committee of European Banking Supervisors.

As well as confirming that up to 60 per cent of top bankers’ bonuses should be deferred for three to five years – with half of upfront and deferred portions paid in shares – the committee said that there should be a “minimum retention period” for share awards beyond the deferral period.

In practice this would mean that a banker awarded a €1 million bonus, for example, would receive €500,000 of it in shares over a three-year deferral period, but could be barred from selling the shares for an additional period of, say, three years beyond that, even though the tax bill on the award would be payable as soon as the shares vested.

“The retention rule is a big surprise,” said Jon Terry, partner at PricewaterhouseCoopers in London. “The tax implication is a significant issue.”

The committee is unclear on the precise duration of retention requirements, but implies that three years would be appropriate.

The regulators, drawn from the 27 EU member states, confirmed the other details of its remuneration rules in an 84-page document, which will now be the subject of a month-long consultation process, with the rules due to come into effect from next January.The main points include a requirement that banks and national regulators together impose a maximum multiple of salary to be paid to bankers. – Copyright The Financial Times Limited 2010