Banks told to comply with tax reforms

BANKS will be expected to manage their tax affairs in a way that is consistent with the government&rsquo;s aim to crack down on tax avoidance, under plans laid out by the Treasury in a consultation document on its new code of practice on tax for banks.<br /><br />The voluntary code aims to ensure that banks &ldquo;comply with the spirit, as well as the letter, of tax law&rdquo;, operating in a way that is consistent with the interests of HM Revenue &amp; Customs (HMRC).<br /><br />Banks will be required to implement a taxation strategy, set out in a formal compliance document, ensuring an &ldquo;open, professional and transparent&rdquo; relationship with HMRC.<br /><br />Boards of directors will be held responsible for implementation of the policy, while those in charge of tax management should be independent of the bank&rsquo;s business units.<br /><br />Regarding the conduct of business, tax planning undertaken by banks should not go &ldquo;beyond support for genuine commercial activities,&rdquo; meaning that attempts to exploit loopholes in the law will be seen as in breach of the code.<br /><br />This will apply even where a bank simply acts as an intermediary in a transaction and lenders will be required to disclose any uncertainties or non-compliant behaviour to HMRC in a timely and transparent fashion.<br /><br />Stephen Timms, the financial secretary to the Treasury, said the code would lessen the impact on the economy of tax avoidance schemes.<br /><br />&ldquo;Tax avoidance damages the ability of the tax system to deliver its objectives, imposes significant costs on society, undermines public confidence in the tax system and shifts a greater burden of tax onto compliant taxpayers,&rdquo; he said.<br /><br />He added that the issue was particularly relevant &ldquo;in light of the significant taxpayer support&rdquo; provided to UK lenders to prevent the collapse of the banking system.<br /><br />As the code is in its consultation period, banks will now have the opportunity to discuss it with HMRC, to express any objections and discuss how best to comply.