I slept on last evening’s blog on the Nationwide.

I have noted one or two commentators have suggested that the comment the Nationwide has made does not suggest they do not have the offshore records, it suggests that they do not have the offshore records onshore in the UK.

I have to say I think this is a meaningless argument. Unfortunately I cannot, as yet, back up my logic with any information from the decision of the First Tier Tribunal in the UK — as far as I can see no detail has yet been published. But I suspect that this decision will require disclosure whether or not records are maintained in the UK. This is not, however the key issue here.

The reality is the Nationwide must have access to the details required by HMRC. The Nationwide’s Isle of Man subsidiary is owned by Nationwide in the UK. That means the UK directors have access to the accounting data of this subsidiary at any and every time they want.

How do I know? There are several reasons why I know. First, as the Nationwide accounts make clear, International Financial Reporting Standards apply to them, including International Accounting Standard 27. This requires consolidated accounts. The UK directors of the Nationwide must have access to the books and records of the Isle of Man subsidiary to prepare these.

Second, take a look at what they say with regard to segment reporting in the accounts for 2009:

IFRS 8 covers segment reporting. What it basically says is that if the main board gets separate data on an activity then that fact has to be reflected in the information published in the financial statements. Here all the information is grouped: no segment data is published because the Board is saying the Isle of Man is part of the UK. The message can be put like this: the Nationwide’s board manages the Isle of Man subsidiary as an integral part of the UK activity. It does therefore have full and free access to its data. They cannot deny that: they have publicly confirmed that fact.

So let’s consider the alternative scenarios we now face. Either 1) my interpretation yesterday was right, in which case the scenario is the one I described or 2) the Nationwide has full and free access to this data but is saying it will not give it because it is hidden in a subsidiary in another state which is, none the less, managed as an integral part of the UK business.

Now which route to non-compliance do you wish to use might be the question? If we go the first route then we have all the consequences I have already explored. If the second is true then there are further options:

1) Nationwide is refusing to supply HM Revenue & Customs with information it has in its possession;

2) Nationwide is representing that this subsidiary is managed in the Isle of Man and yet in its accounts represents it is managed integrally with the UK operation;

3) Nationwide says it has just one set of books and records in its accounts — those for the UK, Isle of Man and Ireland combined — and presents data for that one single entity alone — and yet apparently those books and records are not good enough (for reasons noted in the previous blog on this issue) to ensure that its liabilities are fairly stated — so it now has a books and records problem in the UK and not just in the Isle of Man;

4) I suspect that the Isle of Man company represents that the Isle of Man subsidiary is managed in the Isle of Man alone and is not tax resident in the UK. And yet the parent treats it as an integral part of the UK operation. How can that be? Surely, it is either part of the UK operation, or is not for management purposes, but if presented as part of the UK operation for main board purposes — as IFRS 8 reporting confirms here — then surely its central management and control is here, which means the books and records are available and that it is also UK corporation tax resident. You really can’t have it both ways i.e. claim you’re not resident with central management and control elsewhere and then not how that the subsidiary in question is a separate segment. That’s just not possible, as far as I can see.

What it comes down to is this: the Nationwide has made a public declaration that the books and records of its Isle of Man subsidiary are part of its UK books and records but is then claiming not just that they are separate but that it has no access to the data.

I don’t see any way on earth that can be justified.

I sincerely hope HMRC pursue this very hard.

But it does mean that I have now find a real use (at long last) for International Financial Reporting Standards 8.

Of course they could get round this with country-by-country reporting — but they don’t use it, so can’t make that excuse.

NB added 15.30 24-8-09. I have just realised the Nationwide has not yet adopted IFRS 8. It is still uisng IAS 14 and is assessing the impact of IFRS 8. I do however think my argument stands. IAS 14 requires segment reporting on geographic lines - and the Nationwide is not offering this as it treats all units as one segment. The same conclusions flow.