Mar 20, 2009 5
The Barclays Tax Avoidance Memos – Part 2
Given that some bewigged nutjob in the courts has upheld Barclays Bank’s injunction against the Guardian newspaper, preventing them from publishing the leaked memos on its stunning tax avoidance schemes (a particularly ugly concept whilst it pushes for Government – that’s “taxpayer” – insurance against losses) here’s a few words of explanation about them from the paper’s expert…
Project Knight
Three separate Project Knight transactions totalling up to $16.25bn (£11.2bn). This refers to a series of trades by Barclays Structured Capital Markets division using Luxembourg subsidiaries. One was envisaged with US bank BB&T. Tax opinion for UK from lawyers at Slaughter and May notes that HMRC might seek to challenge some of the tax arrangements. US tax lawyers give opinion that the trade is not disclosable in US.
The Guardian’s tax expert comments…
By my reckoning, the scheme which has been highly engineered to get around tax rules for controlled foreign companies (CFCs) and tax credit avoidance on both sides of the Atlantic, looks set to save Barclays about £60m a year in tax on a £4bn loan outlay, and they are going in for a potential £16bn. I see that these two banks have had business before, another tax avoidance process, that still has a little while to run.
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Project Berry
£3bn rising to £7bn. Barclays acquires index linked gilts via an unregulated subsidiary, Barclays Aldersgate Investments Ltd, which it then swaps for cash with its plc, and plc can then claim them as part of the liquidity it is required by regulations to hold.
The Guardian’s tax expert comments…
Fair chance that HMRC would see accounts for Aldersgate that would show income from index linked gilts (ILG) without declaring the underlying detail that the stock had in fact been loaned to plc and the income was a “manufactured payment”. You can be sure that an inflation discount was claimed in the tax computation, however. It will have been near impossible to pick out of the accounts of plc the specific intra-group transactions with Aldersgate, unless they were highlighted. It MAY be the case that the FSA did not actually know that plc had borrowed the ILG stock, rather than own it as principal.
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Project Faber
£1.5bn. This document specifies details of a deal between a Barclays Isle of Man subsidiary and a Luxembourg branch of the German bank HSH Nordbank.
The Guardian’s tax expert comments…
HMRC would home in on the Isle of Man accounts, only to find that there is (allegedly) no CFC liability. No details about the Luxembourg bank would be provided, because there is no obligation to do so, and HMRC has no way of finding out how the Luxembourg bank’s final tax liability was computed.
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Project Brontos
Up to €3,500m (£3,288m). The scheme, involving a bank in Italy, the Milan branch of Barclays Bank, and an entity in Luxembourg, generated £55m for Barclays, according to the Sunday Times.
The Guardian’s tax expert comments…
The Milan branch would be incorporated in the bank’s accounts. HMRC may well not see the branch accounts at all. Consequently, the Italian bank’s loan would be “lost” in a mass of borrowings. The Luxembourg accounts would be submitted showing next to no profits, and little in the way of activity. If the scheme came to light, it would be explained away as the avoidance of Italian tax by a third party.
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Project Valiha
£381.4m. This was a trade between Barclays and Credit Suisse involving interest rate swaps that enabled Barclays to transfer the gain to Credit Suisse without triggering tax. Benefit of trade split 70:30 in Barclays’ favour.
The Guardian’s tax expert comments…
A piece of precision engineering by the master, Ian Abraham. HMRC would see accounts of the UK subsidiaries, where the tax consequences of the transaction may well be explained, but without the necessary detail of the whole picture. This could well be lost when the mischief gets into a partnership, especially when effective control moves out of the Barclays group. Imagine the answer to the question why did Credit Suisse pay X amout into the partnership, and what was in it for them … the answer would be “I’m sorry, I haven’t a clue”
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Brazilian Investment Strategy
This document details intended operations in Brazil, which went before the Structured Capital Markets (SCM) approvals committee, and were alleged by the whistleblower to involve tax avoidance.
The Guardian’s tax expert comments…
With so many swap-type transactions (and the account revealing only the financial consequences, not the underlying strategy) it would be very difficult to tell what on earth was going on. Such a convoluted series of transactions would need to be laid out in context for them to be interpreted in any meaningful way.
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Luxembourg Office
This document details the meeting at which it was agreed that Barclays would set up a tax avoidance operation based in Luxembourg.
The Guardian’s tax expert comments…
Structured Capital Markets, the very office that invents all these schemes and arrangements, moving to Luxembourg? Looks as if they are ready to move people out as well. My guess is that a Lux Co whose trade would be to help the bank cut corners would not be caught by the CFC rules, and I would expect such an entity to start charging very heavy fees to the rest of the group. So Barclays will not only get a UK tax deduction for tax avoidance advice, but they will get to keep the money, tax-free, in a haven.
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Beyond that, I’ve also had a some emails from people trying to track down copies of the memos and who’d seen links removed from the Guardian website or were having probs with the servers on WikiLeaks.
If it’s any help here is the download link for the Barclays memos on WikiLeaks which still seems to be the best place to get them.
If you’re having problems however, as some people have done from time to time, I have – following requests – put up this link too…
