UK Banks Urged To Sign Tax Avoidance Code

by Amanda Banks, Tax-News.com, London

20 October 2010

UK Chancellor, George Osborne has pressurised UK’s largest banks to add their names to a voluntary tax avoidance code within a fortnight, or face greater scrutiny - and likely repercussions - from the tax man.

Osborne's comments were triggered by a report from the Trade Union Congress (TUC) that only four banks in the City had signed the agreement, brought in by Osborne’s predecessor, Alistair Darling.

According to Osborne, signatories of the tax avoidance code agree not only conform to with UK tax law, but also to comply with the ‘spirit’ of the UK tax law, limiting their use of structures that limit their UK tax liability. The code will also require banks to cease offering clients aggressive tax planning solutions, and will also make banks responsible for the tax compliance of their UK senior staff. Banks not party to the agreement would be subject to greater scrutiny by HM Revenue and Customs, Osborne has said.

The TUC’s latest report revealed that only one of the three banks in the UK that were bailed out by the taxpayer – Royal Bank of Scotland – has so far signed the agreement, with the remaining two – Lloyds Banking Group and Northern Rock - yet to add their names. In total, Osborne highlighted that around fifteen banks will be required to sign up by the start of November.

In particular, the report highlighted a disparity in UK tax policy on banks. The TUC warned that the UK, having already provided GBP850bn to banks during the downturn, stands to lose GBP19bn in tax revenues in coming years as banks are able to offset their losses against future tax liability, providing a second round of support to the industry. Findings by the TUC show, by offsetting losses incurred during 2007 and 2009, a number of leading banks will be able to achieve an effective corporate tax rate 3% lower than that of the average small business, establishing a regressive tax system in the UK, it argues.

The TUC says in preventing the banks’ use of carryforward relief this could provide a major percentage of the UK government's retrenchment efforts.

In comments on October 19 however, Michael Wistow, head of tax at Berwin Leighton Paisner law firm, warned against the TUC’s hard-line approach:

"Creating one set of tax rules for banks and another for the rest of the UK's business community would not do anything to restore international confidence in the competitiveness and predictability of the UK tax code, at a time when all sides would agree this is needed to help put the UK back on its feet economically."

"Preventing banks from treating their losses in the same way as other companies in the UK would not only create an uneven playing field but would also put the UK's financial services sector at a significant disadvantage to other countries and undermine ultimately the UK as its recovers from the recent crisis."

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