The UK tax authorities are continuing their clampdown on tax avoidance, and once again the name of Barclays surfaces at the centre of investigations into a highly complex scheme.
At the end of February, David Gauke, exchequer secretary to the Treasury, closed down what he called "two aggressive tax-avoidance schemes" that exploited rules on releases of debt.
Barclays’ defenders pointed out that the bank had disclosed the schemes to HM Revenues and Customs, so it had hardly been caught out.
However, Gauke’s vexation was evident that Barclays should have submitted a new effort to extract tax benefits from discounts on repurchased debt, following earlier ministerial statements dating back to 2010, that these should be subject to corporation tax.
Last month, The Times newspaper wrote up a first-tier tribunal court decision to prevent 289 individual partners, mostly UK taxpayers, in private film finance vehicle Eclipse Film Partners No35 LLP from claiming tax relief on interest payments under a complex arrangement involving Walt Disney. The partners had, in 2007, bought a 20-year licence from the media company for the distribution rights to two movies and immediately sub-contracted this back to another Walt Disney enterprise.
The case was front-page news because partners in the scheme included Alex Ferguson, the manager of Manchester United, and Sven-Göran Eriksson, former manager of the England football team.
The partners claimed 40% tax relief, for a total of £117 million on £292 million in interest payments, on the largely debt-financed purchase of the rights they made on a 20-year £790 million finance facility provided by Eagle Financial and Leasing Services. Eagle Financial is a subsidiary of Barclays.
After a prolonged investigation by HMRC, the court disallowed tax relief on the interest.
To be excoriated by the UK authorities over one aggressive tax avoidance scheme might be unfortunate, but for the bank’s name to come up so soon in a second raises the question: is anyone on the board of Barclays paying attention to the damage to its brand, credibility and reputation?
Perhaps that’s asking too much for a group that saw fit to ask Barclays shareholders to make £5.7 million in tax equalization payments to chief executive Bob Diamond on his move from New York to the UK in 2011. Diamond is a great banker, and he and his team have created a lot of value for shareholders. But they have been paid very well for this. For such clever people, they still don’t get it.