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’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.
The voluntary code aims to ensure that banks “comply with the spirit, as well as the letter, of tax law”, operating in a way that is consistent with the interests of HM Revenue & Customs (HMRC).
Banks will be required to implement a taxation strategy, set out in a formal compliance document, ensuring an “open, professional and transparent” relationship with HMRC.
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’s business units.
Regarding the conduct of business, tax planning undertaken by banks should not go “beyond support for genuine commercial activities,” meaning that attempts to exploit loopholes in the law will be seen as in breach of the code.
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.
Stephen Timms, the financial secretary to the Treasury, said the code would lessen the impact on the economy of tax avoidance schemes.
“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,” he said.
He added that the issue was particularly relevant “in light of the significant taxpayer support” provided to UK lenders to prevent the collapse of the banking system.
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.