An attempt to generate a tax credit where no tax was originally paid would seem to defy any commonsense understanding of straight-dealing
We were advised they were legal, everybody's been doing it, and this has only come to light because we're a good corporate citizen and thought it best to check with the taxman. That was the gist of Barclays' explanation of how it came to be fingered as the would-be user of two tax-avoidance schemes that the government regards as "highly abusive," one of which requires a retrospective change in the law.
Persuaded of Barclays' good intentions? Well, it's impossible to know from outside whether other banks have been deploying, or even attempting to deploy, the two contentious techniques – one that sought to avoid tax on profits from buying back debt at less than face value; another that sought to generate tax credits on income even though no tax had been paid in the first place.
But, on the face of it, Barclays' account sounds at least semi-plausible. Everything we know about how the tax system works in practice suggests that, once some brain-box accountant has spotted a legal loophole, the idea is then flogged around town for others to try their luck with HM Revenue & Customs.
On the other hand, Treasury minister David Gauke was clear that this was a case of one bank (he didn't name Barclays) pushing something new, or at least new to HMRC. "There is no evidence that other banks are not disclosing these schemes," he said. And the Treasury stated: "These are not transactions that a bank that has adopted the code [of practice on tax avoidance] should be undertaking."
That second point is the tricky one for Barclays. An attempt to generate a tax credit where no tax was originally paid would seem to defy any commonsense understanding of straight-dealing. How does chief executive Bob Diamond, wearing his Good Citizen badge, explain that puzzle? Hasn't Barclays volunteered to be judged by its compliance with the spirit, not just the letter, of the law?
Yes it has. Indeed, Barclays these days likes to brag about how much tax it pays – £6.4bn globally, and £2.9bn in the UK, in direct and indirect taxes last year, according to the most recent results announcement. That sounds a lot until you remember that "indirect" taxes include payroll taxes, which are properly viewed as a normal cost of business for any employer. The bank's cash flow statement recorded £1.9bn of tax paid last year. In which countries was the tax paid? Companies are not obliged to say, and Barclays chooses not to.
If the bank is serious about presenting itself as an uncomplaining taxpayer it should do two things. First, give a country-by-country breakdown of where it pays direct taxes. Second, provide an easy-to-understand account of what goes on within its famed "structured capital markets" unit, the source of many grumbles over the years about tax planning.
Both would be laudable disclosures for a firm that says "a reputation for integrity, both in our business behaviour and in our management systems, is crucial to the attainment of our commercial goals and to the fulfilment of our corporate responsibilities".