A U.K. parliamentary panel called on Barclays Plc (BARC) to explain its use of an “abusive” tax-avoidance plan after Chancellor of the Exchequer George Osborne accused the bank of breaching commitments agreed with the government.
In a letter to Treasury Committee Chairman Andrew Tyrie published today, Osborne rejected Barclays’ suggestion that the bond-buyback scheme was widely used and tolerated. The program was not in line with the 2010 code under which banks pledged to obey the spirit as well as the letter of U.K. tax laws, he said.
“The chancellor flatly contradicts Barclays’ letter to the committee,” Tyrie said in an e-mailed statement in London today. “If Barclays thinks the chancellor is mistaken it should explain why.”
Barclays pledged to comply with the government decision in February to close two tax loopholes it exploited and which the Treasury called “highly abusive.” The two “aggressive” tax-avoidance programs could have deprived the public purse of more than 500 million pounds ($795 million).
In a letter to Tyrie dated May 15, Barclays’ then chief executive officer, Robert Diamond, said the bank believed other companies had used similar debt-buyback programs and that the tax authorities were aware of it.
“The important judgment from our advisers” was that “because HMRC had taken no action to prevent those treatments, there was a clear precedent to satisfy the test of the spirit of the law,” Diamond said.
Writing to Tyrie in June, Osborne said HM Revenue & Customs had assured him that Barclays was the only company using such a system.
“HMRC has not been able to identify any arrangements similar to those put in place by Barclays, nor has any tax adviser or other company identified any such arrangements and HMRC would challenge anything that came to light,” Osborne said. “HMRC has asked me to point out that had they been consulted in advance of the bank’s transactions they could have made the position clear.”
The decision to close the loopholes “was not harsh treatment of a particular bank but rather the first opportunity to block a newly identified avoidance scheme,” he said. Barclays spokesman John McGuinness declined to comment.
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