CIOT Casts Doubts On Tax Code For UK Banks

by Robert Lee, Tax-News.com, London

28 September 2009

The Chartered Institute of Taxation (CIOT) has expressed concern over the UK government's tax Code of Conduct for the banking industry, warning that the proposals threaten to undermine the rule of law in taxation.

The CIOT, which on September 22 submitted its response to the HM Revenue & Customs (HMRC) consultation document "A Code of Practice on Taxation for Banks," said it has "serious concerns" about the proposed code.

“We have always had a consistent stance of upholding the rule of law in taxation," commented Andrew Hubbard, CIOT President. "We do not think wider agendas about the banking industry – on which we are not qualified to comment – should erode that key principle. We strongly oppose a code that tries to override statute as the governing force of taxation in the UK.”

Chancellor of the Exchequer Alistair Darling announced in March that banks will be encouraged by the government to sign up to a voluntary code stipulating minimum standards of tax compliance. The intention, Darling told the House of Commons at the time, was to ensure that banks obeyed the spirit, as well as the letter, of the law.

The government's announcement followed in the wake of reports published by The Guardian newspaper that the Royal Bank of Scotland and Barclays Bank participated in large-scale tax avoidance schemes using a series of complex transactions and financial instruments.

HMRC launched its consultation paper on the proposed code of taxation for banks in June; the consultation period ended on September 25. In the paper, the government argues that the code is needed because "for the tax system to be effective it must be seen to operate fairly and everyone should pay their fair share of tax."

"The government expects all businesses and individuals to manage their tax affairs in a responsible way," the paper states. "However, it believes that the unique position of the banking sector imposes a particular responsibility on them to comply with the spirit as well as the letter of the law and to do so in a way that is transparent and open."

But the CIOT believes that such an approach creates more uncertainty and throws open questions as to how HMRC will police the code.

"The CIOT has long objected to ‘taxed by law, untaxed by concession’; the CIOT similarly opposes a code that seems to attempt to ‘tax by code that which is untaxed by law'," the Institute said. "Taxing statutes should reflect the intention of Parliament; if they do not, then Parliament should change the law so the two are in accord. A modern tax system needs to give its users certainty and that must flow from well-drafted tax statutes."

John Whiting, Tax Policy Director of the CIOT, added: “If the code is to go ahead, there must also be comparable obligations on HMRC to operate the tax system in accordance with Parliament’s intentions. And if this is to be a voluntary code, it should be for HMRC to adjust their approach, not penalize those who do not adopt it.”

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