HMRC made the proposal at the end of last month when it published plans to “strengthen” the voluntary Code of practice on taxation for banks which was first introduced by Alistair Darling in 2009.
According to international law firm Pinsent Masons, which has reviewed the proposals, the strategy of naming and shaming banks is a “significant ratcheting up of the pressure on the banks over their involvement in legal tax planning” either on their own account or on behalf of their clients.
Ray McCann, a non-lawyer Partner at Pinsent Masons said: “This is not the code that banks signed up to – it is a definite tightening of the screw.
“This gives HMRC the power to impose what will in effect be a sanction i.e. to name and shame banks in circumstances where the bank may not be in breach of any statutory requirement. Failing to allow an independent review process is a worrying precedent especially in the light of the commercial harm such action could involve. ”
Pinsent Masons said the original code of practice had been portrayed at the time as a “gentlemen’s agreement”, by which the banks undertook to reduce their use of tax planning schemes.
However, under HMRC’s proposals, which would see assisting a customer to undertake legal tax planning as “failing to follow the spirit of the law”, banks would have no statutory right of appeal to prevent HMRC naming them to the public.
“No bank wants an activist group trying to camp out in their lobby or to be vilified in the press over what might include perfectly legal work,” added McCann.
“The debate over tax avoidance has become so heated and contentious that it is unlikely that a bank that is named and shamed by HMRC will be then be given a fair hearing from the public.”
“It is disingenuous for HMRC to assert that banks will have "normal recourse to judicial review"; there is nothing "normal" about judicial review, as HMRC itself has found out in the recent past. It’s very costly and can take years to conclude – years after the damage has been done to their reputation.”
The consultation is open for comments until 16 August. To contribute, visit HMRC’s website here
