Memo

To: Dave Hartnett, HMRC

From: Richard Murphy, Tax Research LLP

Date: 8 October 2008

Subject: Bank equity and structured finance

Dear Dave

I'll trust you'll forgive me writing an open memo, but there seems to me to be an issue we should really be discussing.

Today HMG announced plans to acquire substantial stakes in most major UK banks. The conditions attached to those investments seem extremely modest, and quite uncommercial. In particular, they seem only to relate to salary and remuneration of a limited number of staff and some conditions on the payment of dividends.

There appear to be many more that are required, but I thought I should draw one I think desirable to your attention. As you and I both know several of these banks are heavily committed to what is called 'structured finance'. This involves the creation of artificial structures, often across a number of jurisdictions, with the sole purpose of removing some income from tax or creating double tax deductions.

My question is simple: shouldn't these operations be shut down as a condition of any support for these banks? Isn't it a basic quid pro quo that they pay their tax in exchange for tax payers support? Isn't this something that should be in the forthcoming legislation to implement this arrangement?

I offer it to you as a thought.

Best regards

Richard