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Treasury targets £500m Barclays tax schemes

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28th Feb 2012
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Barclays Bank has emerged as the target for two retrospective measures to close Corporation Tax avoidance schemes worth an estimated £500m.

On the afternoon of Monday 27 February, the Treasury released details of amendments that will be included in the Finance Bill 2012 to prohibit arrangements that exploit “deemed releases” rules on loan relationships to avoid Corporation Tax. The retrospective provisions will apply to arrangements made between 1 December 2011 and 27 February 2012 - which the details of which would have already been disclosed to HMRC under its Disclosure of Tax Arrangement Schemes (DOTAS) rules. The amendments cover:

  • Debt buybacks – The tax rules on loan relationships rules as currently defined do not apply where a debt exists between connected companies. Following the amendment, they will now impose a “deemed release” on the debtor if that debt is purchased at a discount by a connected creditor, or if “contrived arrangements” are used to ensure the profit on a buyback of discounted debt would not be subject to Corporation Tax. The statutory instrument and explanatory notes are available from HMRC’s website (81kb PDF).
  • Authorised Investment Fund regulations – amended to prevent situations “under which a small minority of corporate investors have sought to create repayable tax credits with distributions received from an authorised investment fund (AIF) where no underlying tax has been paid”. More details here.

The ministerial announcement from exchequer secretary to the Treasury David Gauke mentioned no names, but pointedly remarked that the rules on discounted debt buybacks by banks had been targeted in the Finance Act 2010, but that an unnamed bank had entered into such a scheme.

“The bank has adopted the Code of Practice which contains a commitment not to engage in tax avoidance,” Gauke added. “The Government is clear that  this not a transaction that a bank that has adopted the code should be undertaking.”

Both the debt buy backs and investement products designed to create tax credits where the tax in question has not been paid were “wholly unacceptable, against the intentions of Parliament and the spirit of the law”, the minister added.

It quickly emerged in news reports in the Financial Times and the BBC that Barclays was the bank concerned, which reported that the amounts concerned were in the region of £500m. The bank would not comment. In its preliminary results earlier this month, Barclays came under fire from the investor lobby group PIRC after reporting adjusted profits of £5.6bn -  a stark contrast to the billion pounds of losses reported by partially nationalised banks RBS and Lloyds TSB. 

Retrospectively closing arrangements that could have been vetoed under DOTAS is an odd way for the Treasury to behave. Cynics might even argue that the government saw an opportunity to demonstrate how it was getting tough with corporate tax avoidance while simultaneously padding its current account with a few hundred million extra.

The  Treasury webpage containing these anti-avoidance measures is worth a closer look, as it is packs a veritable mini-Budget of draft legislation and a number of other noteworthy new pre-Budget consultation documents. 

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Replies (13)

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Teignmouth
By Paul Scholes
28th Feb 2012 10:33

Just posted on Time Out

But to save the clicks.....As the months & years go by and news, such as their underhand tax planning , is unearthed, and their attitude to customers like me evolves, a parallel comes to mind between this legal organisation and another illegal one.

Yes, I'm sure they have never planned or put into action a "hit" on anyone in particular but the ethos they practice (rather than the ethos they portray) seems to reflect and promote the worst side of commerce, ie that their profits are made solely by creating losses for someone else. 

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By david5541
28th Feb 2012 16:23

corp tax avoidance!

the biggest ones of course are loan interest and management charges.

 

The spanish escaped corp tax on BAA by shunting in a load of loan interest from the parent company and turning BAA's operating profi(and hence its over reliance and exploitation of heathrow positive cash flows to the detriment of other airports-notice/heads up BORIS!) into a convenient loss.........

 

and now BA has done the same shared its ownership with IBeria to dilute its earnings.

 

online filing with IXBRL reporting to companies house and the Inland Revenue is going to hit the corporate sector big time with much better risk ratio analysis by HMRC!!!

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By david5541
28th Feb 2012 16:24

barclays

the sooner diamond bob leaves the uk the better

 

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By Trevor Scott
28th Feb 2012 17:38

Governments should ....

... make up their mind as to whether they want tax transparency or not. If they want transparency then legislate for full disclosure of worldwide activities. I suspect the UK likes present arrangements as they benefit from being a tax advantageous legal environment.

Yet again the Government has acted to outlaw activities retrospectively, evidencing at least two facts:

1. The company acted within the law to avoid unnecessary taxes.

2. Those drafting and approving laws are incompetent.

Anyone who expected Bob Diamond, or any other senior officer, to act like a sheep and let its shareholders get unnecessarily fleeced is at least naive and should be removed from Government/Civil service.

 

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
29th Feb 2012 10:13

McGrigors: "Extraordinarily aggressive"

We have received the following comments on the issue from McGrigors, a law firm specialising in tax.

Heather Self, director of the firm's tax practice said: “It is very rare for arrangements already in place to be stopped by retrospective changes to the law. This shows that the government is serious about clamping down on avoidance, and makes it even more likely that formal consultation on a GAAR (General Anti-Avoidance Rule) will be announced at the Budget in March.”

Her colleague Tom Cartwright, a director in the tax practice, added: “The imposition of the changes to the legislation have been given retrospective effect and seem to be designed specifically to catch Barclays. This is extraordinarily aggressive by the government.  Barclays were using a structure which was reasonably well-known in the market to effect a debt buy-back in a tax-free manner.

“Barclays or anyone else who undertook the scheme after 1 December 2011 may have a claim under the Human Rights Act.  However, succeeding in such a claim is invariably difficult as retrospective legislation is not automatically contrary to the Human Rights Act.”

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Teignmouth
By Paul Scholes
29th Feb 2012 10:36

"Human" Rights?

Since when have these things been human?  My dog's more human than Barclays

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By dominovision
29th Feb 2012 11:06

Unfair and undemocratic

It's outrageous that the government can retrospectively change tax or any law for that matter for political point scoring. It's undemocratic and unfair. @Paul if you don't like your bank, then change it and stop whining.

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Teignmouth
By Paul Scholes
29th Feb 2012 11:22

Now Now be nice dom

Difficult to be personal when I don't know your name but I "dumped" Barclays some time ago in favour of an organisation with ethical values. Doesn't mean I still can't speak out against their practices.

There's not much that this government does that I can praise but going out on a limb on this and "growing a pair" was what most reasonable people would have hoped for.

If something is clearly unacceptable, especially after the perp has indicated their acceptance of the principle, then, as long as the power that be makes 100% sure of the facts, I see nothing wrong in retrospective action to put right a wrong. 

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By dwgw
29th Feb 2012 11:47

What is "retrospective" anyway?

Hard to comment without knowing more detail but, before rushing to the "outrageous" barriers, how truly "retrospective" is this?  Some commentators seem to think that if something was disclosed under DOTAS, any action taken against a particular scheme will automatically be retrospective.  But wasn't DOTAS designed to enable certain tax avoidance schemes to be challenged, not to provide assurance for those entering such arrangements?

Over a decade ago, a lot of companies set up EBTs with corporation tax relief and alternative tax avoidance arrangements available on future extraction.  Those that followed found it wasn't so easy.  Nobody argued retrospection there but it seems to me there's some parallel - an understood and accepted tax planning route that had benefitted many became a costly expense for later adopters.  Not retrospective legislation but certainly retrospective in its practical effects.    

PS I don't like Barclays either, even though it's not my bank.

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By ThornyIssues
29th Feb 2012 13:12

Two things

Let us get a few things straight here.

1) If Government continue to pass overly complex, ill-defined, vague and wolly tax laws or indulge in sticking plaster fixes, there can be no come-back if people or businesses expose loopholes. Simply the tax laws and remove the oportunity to create loopholes.

2) Allowing retrospective legislation, particulalry giving that ability to HMRC, sets a very dangerous precedent and must be countered at all costs.

 

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By dwgw
29th Feb 2012 14:25

One thing

Thornyissues - HMRC don't make any legislation, retrospective or otherwise.  That's the government's role. The civil service can't be blamed for any legislation, they just administer it.

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Replying to Matrix:
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By ThornyIssues
29th Feb 2012 15:02

Small correction

dwgw wrote:

Thornyissues - HMRC don't make any legislation, retrospective or otherwise.  That's the government's role. The civil service can't be blamed for any legislation, they just administer it.

I don't think I said HMRC create legislation! They certainly influence badly IMHO though. Maybe I should have said "Creating laws that allow HMRC to use retrospection ...." in point 2 would have been clearer.

 

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By adoggett
29th Feb 2012 16:29

The more detailed the tax laws become, the more avoidable

Producing rafts of tax legislation each year has become counter-productive - easier to find a loophole. All this legislation has now become a deathnell for Uk business.. How many different taxes do we have now? and how much do we pay for people to oversee these taxes. For each simplification of tax rules.. just increases the bureaucracy.

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