September 5, 2012 / 11:03 PM / in 6 years

UK rejects claim it singled out Barclays in tax row

LONDON (Reuters) - British finance minister George Osborne has rejected a claim by Barclays Plc (BARC.L) that the bank was singled out for harsh treatment in a tax row and said the government took action due to the amount of tax at risk.

Britain's Chancellor of the Exchequer, George Osborne, speaks on the BBC's Andrew Marr Show in London September 2, 2012. REUTERS/Jeff Overs/BBC/Handout

“This was not harsh treatment of a particular bank but rather the first opportunity to block a newly identified avoidance scheme,” Osborne said in a letter to Andrew Tyrie, chairman of parliament’s cross-party Treasury Select Committee.

Tyrie published the letter on Thursday after asking Osborne to respond to claims made by former Barclays Chief Executive Bob Diamond in May that tax authorities had singled his bank out for unfair treatment and damaged its reputation.

The government in February closed what it said were two “aggressive tax avoidance schemes” used by Barclays and also applied a new tax to a bond buyback the bank had done in December.

Osborne’s letter said the government had acted retrospectively partly because about 300 million pounds in tax payments were at risk.

“If Barclays thinks the Chancellor is mistaken, it should explain why,” Tyrie said.

Barclays declined to comment. A person familiar with the matter said the bank was keen to move on and not re-open the dispute.

Diamond had said in a letter to Tyrie that the way the tax row was handled was “completely unwarranted”. Tax avoidance is not illegal, and Barclays said it did nothing wrong.

But it was a high-profile embarrassment and has been cited as evidence of an aggressive culture at the bank. Criticism of Barclays’ culture erupted in June after the bank was fined for manipulating interest rates, which rocked the bank and prompted Diamond to quit.

According to Osborne, HM Revenue and Customs said it was not aware that other companies had used a similar approach to avoid taxes and would have made its position clear if the bank had consulted it in advance.

Osborne said he took the rare step of retrospective legislation also because Barclays had shown a disregard for legislative changes introduced in 2009 and a failure to act in accordance with a code of practice.

Tyrie criticized the code of practice as adding to complexities around tax laws.

“The development of a ‘code of practice on taxation’, requiring banks to adhere to ill-defined standards in addition to the law, risks making the tax system even more ambiguous,” he said, calling for a simplification of the tax system.

Reporting by Steve Slater; editing by Jane Baird

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