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Banks under pressure to sign code of practice

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Only four of the 15 largest banks have signed the Government’s code of practice on taxation for banks, the Chancellor told the BBC on 17 October. The Treasury said last year that it expected all banks operating in the UK to adopt the code.

HMRC guidance said the Labour Government’s aim in devising the code was to encourage banks to follow the spirit as well as the letter of the law. ‘Following the spirit of the law will mean banks should undertake tax planning to support their business operations, but this should not be used to achieve tax results that are contrary to the intentions of Parliament,’ it said at PBR 2009.

George Osborne has said he will force the remaining 11 largest banks to sign up by November, the BBC reported. The Daily Telegraph quoted a spokesman for the British Bankers' Association as saying: ‘Our members carry out regular talks with HMRC and comply with all the law.’

The TUC claimed in the run up to the Government’s spending review that ‘despite being rescued by taxpayers during the crash, UK banks will avoid paying £19 billion of tax on future profits by offsetting their losses during the financial crisis against their tax bills’.

A new report written by the anti-avoidance campaigner Richard Murphy, titled ‘The Corporate Tax Gap’, said banks would be able to offset losses arising between 2007 and 2009 against their future profits.

Brendan Barber, the TUC’s General Secretary, said: 'Banks caused the global financial crash and triggered the recession that produced the deficit. Yet not only did they take almost a trillion pounds from taxpayers to bail them out, they are now using the losses caused by their irresponsibility to cut their tax bills for years to come.’

The TUC planned to highlight what it called a ‘£19 billion double subsidy’ ahead of an anti-cuts rally.

Murphy’s report said: ‘At a time when everyone is supposed to be contributing to the   resolution of the UK financial crisis in equal measure it would seem that the banks who created it, and whose losses were supported by the government with taxpayer funds, will be offsetting the resulting tax losses against their future profits for some time into the future. As a result, they alone will not be making any significant contribution to the economy as we struggle to come to terms with the problems they created.

‘And since it seems that, overall, the rest of the UK’s businesses do not have similar losses to offset against future profits, and so they will be making tax payment in the future, this situation is peculiar to these banks.’

'Uneven playing field'
Michael Wistow, Head of Tax at the law firm Berwin Leighton Paisner, said: ‘Creating one set of tax rules for banks and another for the rest of the UK's business community would not do anything to restore international confidence in the competitiveness and predictability of the UK tax code, at a time when all sides would agree this is needed to help put the UK back on its feet economically.

‘Preventing banks from treating their losses in the same way as other companies in the UK would not only create an uneven playing field but would also put the UK's financial services sector at a significant disadvantage to other countries and undermine ultimately the UK as its recovers from the recent crisis.’