Barclays – what to do – 1

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I have suggested that people are getting angry about Barclays Bank’s tax abuse. I think they are right to do so. I suspect that they will demand action and I am firmly convinced that the government must take action if the credibility of the UK tax system is to survive. Sitting back and waiting for this matter to proceed through the courts over the next few years is not an option.

That said, most tax lawyers and accountants work for the likes of Barclays Bank, or would at least align themselves with them on the issue of tax avoidance, arguing that anything that is within the law is acceptable. That places a significant burden upon the few of us who argue that tax avoidance is unacceptable.

Thankfully most of the necessary response is that the government could now take were described by me in a report that I wrote for the Tax Justice Network and for the Association for Accountancy and Business Affairs in 2007. This is available here. That report proposed code of conduct for taxation, which I will reproduce as a separate blog since it is only two pages long, but as importantly it provided a discussion of much of the jurisprudence that must be reformed if we are to effectively tackle the sorts of complex and highly damaging tax abuse that Barclays has made a core part of its business. I will also reproduce these discussions are separate blogs, very soon. That change in jurisprudence is the first essential process that is required to tackle this abuse.

The second essential process is the introduction of a general anti-avoidance principle into UK taxation law. I call these a GAntiP – a phrase coined by Judith Freedman of Oxford University to avoid confusion with GAAP – which stands for generally accepted accounting principles. I will also publish a blog on this issue in the next few hours. The time for such a principle has arrived. We must now kill off for ever the principle put into UK taxation law by the House of Lords in 1936 in the Duke of Westminster case which basically said that any legal tax arrangement was acceptable, however abusive it might be an even if its sole purpose was to save tax.

Thirdly, we need to expose the abuse that Barclays is perpetrating. The introduction of country by country reporting would substantially facilitate this. I find it extraordinary that tax authorities the world over are not supporting this form of accounting and that investors the world over are not demanding it because they too are suffering as a result of the abuse of taxation systems by multinational corporations who are generating unsustainable, and in some cases artificial profits as a result of their abusive transactions that would be much easier to detect if we had country by country reporting.

Fourthly there can be no doubt that we now need legislation equivalent to that of the Glass-Steagall Act in the USA. This was designed to limit bank speculation. We need action anyway to stop deposit taking banks undertaking investment banking activity in the future. This is a fundamental part of bank regulatory reform, But we also need it to immediately outlaw banks undertaking tax driven structured finance activity. This form of abuse has to be made illegal. That is possible.

Fifth we need to make clear that no bank that trades in the UK can undertake investment banking activity anywhere in the world or tax driven structured finance activity anywhere in the world. We cannot let tax havens become the place where this abuse is undertaken because we outlaw it here in the UK. Some banks may leave the UK as a result: so be it. We will do without them. 

Sixth as part of the necessary sanctions against tax havens / secrecy jurisdictions that must follow the G 20 all transactions by banks through tax haven / secrecy jurisdiction subsidiaries and associates which appeared to have no significant purpose bar the securing of a taxation advantage must be explicitly banned from consideration in determining the UK taxation liabilities arising on a transaction if the consequence of including them would be to reduce that liability.

Seventh, the directors of banks must be made personally criminally responsible for breach of any of these regulations, and must be subject to fines of up to five times their annual remuneration plus the entire sum invested in their pension fund. Jail sanctions must also be significant and must be mandatorily considered by all judges whenever a breach of regulation gives rise to a taxation loss of in excess of £50,000.

Eighth, the audit of all banks should be removed from the big four firms of accountants who are normally participants in the design of these abusive tax schemes. The audit of these banks should instead be the responsibility of the National Audit Office, even if they then contract one of those big four firms to provide the staff to undertake audit work on their behalf. The National Audit Office would be legally obliged to inform each and every tax authority around the world of any tax abuse that it had discovered during the course of its audit.

Finally, for now, any UK listed bank seeking to exit the UK as a consequence of this regulation should be compulsorily nationalised with no premium payable over net asset worth.

The point I make here is simple: let no one say there is nothing we can do about Barclays.