The Wall Street Journal BUSINESS February 27, 2012, 2:46 P.M. ET
U.K. Hits Bank With £500 Million Tax Claim
By AINSLEY THOMSON
LONDON--A bank operating in the U.K. will have to make a tax payment
of more than £500 million (about $792 million) after the government
took action Monday to close two "aggressive" tax-avoidance schemes the
bank was using.
The Treasury said the closure of the two schemes--which it described
as being "highly abusive"--would also prevent billions of pounds being
lost in the future.
The tax avoidance came to light when the bank in question recently
disclosed to U.K. tax department HM Revenue & Customs that it had used
the schemes. The Treasury declined to name the bank for
Under the first scheme, the bank used a loophole that meant the
commercial profit from a buyback of its own debt wasn't subject to
In an usual step, the government said it would introduce legislation
that wouldn't only prevent the scheme's use in the future, but will
also act retrospectively to block its recent use by the bank. The
legislation will also apply to any other bank or company that has used
a similar scheme recently.
"We do not take today's action lightly, but the potential tax loss
from this scheme and the history of previous abuse in this area mean
that this is a circumstance where the decision to change the law with
full retrospective effect is justified," said David Gauke, exchequer
secretary to the Treasury. "The government wants to ensure that the
tax system is fair for all and we will not allow those who seek to
benefit from this aggressive avoidance to get an unfair advantage."
The government's action coincides with a surge in recent months of
banks buying back debt from their subordinated bondholders. Banks that
have launched debt exchanges include: Barclays PLC, Lloyds Banking
Group PLC, Banco Santander SA, and Bank of America Corp.'s Bank of
America Merrill Lynch. The debt buybacks were spurred by the
relatively inexpensive price of the debt after costs dropped amid the
financial crisis, and by the boost it provides to the banks' capital
levels, something increasingly required by regulators.
The Treasury said the second tax-avoidance scheme, which was used by
the same bank, involved using investment funds to convert non-taxable
income into income entitled to a tax credit, which meant the bank was
able get a "repayment" or credit from the Treasury on tax that hadn't
been paid. The government will Monday introduce legislation to block
any future use of the scheme.
--Art Patnaude and Jessica Hodgson contributed to this article.
- posted 8 years ago