UK: Code of Practice on Taxation for Banks - draft published by HMRC

HMRC yesterday published for consultation a Code of Practice on Taxation for Banks. HM Treasury explained, in an accompanying press release, that the Code "sets out the behaviours the Government expects from banks in the management of their tax affairs and in their relationship with HMRC, including governance, tax planning and the relationship between banks and HMRC". 

Section 1 of the Code states that banks should comply with the spirit as well as the letter of tax law, with reference to the intention of Parliament. Banks should not, the Code provides, undertake tax planning that aims to achieve a tax result that is contrary to the intention of Parliament. This is supported by Section 3 which provides that banks should not engage in tax planning other than that which supports genuine commercial activity.

Section 2 of the Code deals with governance and contains the following provisions:

The bank should have a documented strategy and governance process for taxation matters encompassed within a formal policy. Accountability for this policy should rest with the UK board of directors or, for foreign banks, a senior accountable person in the UK.

This policy should include a commitment to comply with tax obligations and to maintain an open, professional, and transparent relationship with HMRC.

Appropriate processes should be maintained, by use of product approval committees or other means, to ensure the tax policy is taken into account in business decision-making. The bank’s tax department should play a critical role and its opinion should not be ignored by business units. There may be a documented appeals process to senior management for occasions when the tax department and business unit disagree".

With regard to enforcement of the Code, the Government explains (para. 4.8 ):

The Government expects banks who adopt the code to comply with it. Where banks do not comply, or where HMRC has concerns about compliance with the Code, HMRC will raise the issue with the board of the bank. Where appropriate, HMRC will raise their concerns with the senior non-executive. Where non-compliance is found to be deliberate and the officer of the bank who signed up to the Code is a member of a professional body, HMRC will consider making a report to that body. We welcome views on this approach to enforcement".