The Sunday Times has reported:
BARCLAYS, the high street bank, is alleged to be making about £1 billion a year from an international web of financial schemes designed to avoid paying tax in the UK and abroad.
The claim has been made by a whistle-blower who passed internal Barclays documents to Vince Cable, the deputy leader of the Liberal Democrats.
I have seen some of this documentation. I am quoted in the article:
Richard Murphy, a forensic tax accountant, said the documents relating to Project Valiha indicated that it would be financed with £2 billion from Barclays, but it had no real underlying commercial activity.
“It is designed so the money goes round in a big circle and comes back to Barclays so that they make £99m in tax savings without taking any risk at all. The whole thing takes three days,” he said.
Murphy described the transactions in the documents as “almost entirely artificial”. He said: “They work on the basis of exploiting tax regulations and the laws of different countries. They don’t generate any real profit for anyone, but they do save vast amounts of tax that they would otherwise pay.”
The documents — which I am sure are real — where provided by a whistleblower who said:
The extent to which [Barclays] reduce tax through fictitious . . . transactions has made many in the industry uncomfortable, especially when this means less hospitals and schools being built.
The Sunday Times says:
Yesterday a spokesman for Barclays said the SCM did not exist primarily for tax avoidance schemes. He said the team was part of its financing business and provided services which often involved tax.
He said its revenue, rather than profits, was likely to be £1 billion, although there are no accurate figures available. He said this did not include the money made from the tax saved by its various projects.
I’m really not sure I believe that.
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At last some of this essentially criminal activity is coming to light. I would suggest that £1 billion is a low not high estimate of the excess revenue (profits?) that this group generates. It is no coincidence that Jenkins engineered the deal with Mideast investors that “saved” Barclays from the grasp of the government. (while destroying the shareholders). This bank is all about generating massive (tax efficient) payoffs to a small group (Diamond,Jenkins..) while thumbing their noses at HMRC, the regulators and even stockholders. The purchase of Lehman and the surrounding payoffs there deserve very close scrutiny as well. If it ends in tears watch carefully for the plundering that will go on even in death.
I would have thought that this sounds like a very old-fashioned scheme well within traditional anti-avoidance case law. Circular transactions with no basis in reality. I hope Mr Cable has passed all this on to Mr Hartnett and that Barclays will have a large back duty settlement.
If this is as it seems to be, then presumably Barclays have only been getting away with it on the basis of secrecy. Surely there should be not just penalties but prosecutions here under existing legislation?
James, I think it is very naive to think that the transaction will be easily attacked. Barclays use the most pre-eminent tax lawyers in order to sign-off their transactions and they are unlikely to be brought down by Ramsay/Furniss arguments.
Robert, unfortunately the same comment goes. Part of the problem right now is that these activities are not criminal and anyone who is well advised can steer their way through the legislation in order to get the tax result they want.