The Code of Practice on taxation for banks

The Code of Practice on taxation for banks

The current definition of Bank for these purposes is based on the bank levy definition, without the protection of the £20bn threshold.


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KPMG IFRG Limited (UK)


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On 31 May 2013 HM Revenue & Customs (HMRC) published a consultation on strengthening the Code of Practice on taxation for banks. This did not include any proposals on the content of “the Code”; instead the consultation focused on strengthening the consistency of the application of the Code.  The proposals include:

  • A requirement for any bank that wants to continue to be subject to the Code, to unconditionally confirm in writing their commitment to the Code.
  • Publication by HMRC at Autumn Statement 2013 of a list of all banks that have newly adopted or re-adopted the Code.
  • From 2015 onwards, the publication of an annual report on the operation of the Code, which may include the naming of any bank that in HMRC’s opinion is not complying with the Code. Each annual report will include an updated list of those banks that have adopted and those that have not.
  • Legislation enacting the above proposals will be included in Finance Bill 2014.

The Code impacts all banks, building societies and certain securities dealers (“Banks”).  The current definition of Bank for these purposes is based on the bank levy definition, without the protection of the £20bn threshold.  There has been some suggestion that the scope should be extended to the “shadow banking” sector, but whether HMRC will act on this suggestion is unclear.  What was made very clear in the first “Town Hall” meeting held on 24 June is that HMRC are seeking to “cement” the Code for future years when, for example, more Banks are taxpaying and the appetite for tax risk could change.

We would recommend that Banks engage with HMRC on the proposals through trade associations, other Town Hall events and directly with HMRC CRMs and Inspectors.  Banks should also consider whether to make a formal response to the Condoc before 16 August.  Given the Autumn Statement timetable, it will be important to escalate this issue to Boards and general managers/head office, during the consultation process. 

There are legal concerns around taxpayer confidentiality, a lack of external oversight of HMRC decisions on Code compliance and HMRC having quasi legal powers. It will be important to stress to HMRC the need for greater transparency around HMRC’s decisions on Code compliance and the need for an external appeals procedure.  Other points to consider include:

  • The timetable between the HMRC response to the Condoc (expected 30 September) and the Autumn Statement.  It will be difficult enough for UK Banks to timetable a Board meeting to agree a position on the Code in this timeframe, never mind for branches of foreign banks.
  • Banks will have to sign up to the Code in writing and unconditionally.  There is an aim for consistency, but this reignites the debate on how anyone can sensibly and consistently interpret “the spirit of the law” and “intentions of Parliament”.  A debate that cannot ever be resolved satisfactorily. 
  • The treatment of “smaller banks” is unclear: Section 1 of the Code is in fact a summary of the rest of the Code; how will a smaller bank be defined?
  • Branches of foreign banks may have difficulty convincing Boards at head office to adopt the Code.  Who are “the board” that HMRC would engage with at a branch bank?
  • Although the Code itself is not changing, will HMRC’s views on the Code expressed in guidance change over time, i.e. will there be “scope creep” without an opportunity for appropriate consideration by Banks?

Ultimately, Boards will need to weigh up the tax, legal and reputational issues that will arise from the strengthened Code.  Although the Code is prospective, Banks should be mindful of legacy tax disputes that have yet to be concluded.

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.

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