BKM504800 - The Code commitments – tax planning: promotion

The Code makes clear (paragraph 3.2) that there should be no promotion of tax planning to other parties unless the bank reasonably believes that those arrangements will not give tax results for other parties which are contrary to the intentions of Parliament.

In the case of tax avoidance, the following guidance covers situations where the bank is a party to transactions or arrangements which have an impact on the tax position of the customer and the bank has some knowledge of the tax effect of the transactions or arrangements.

HMRC’s view is that that the Code will cover transactions (and should therefore be brought within a bank’s Code of Practice governance process) where any of the following apply:

  • The bank has been actively promoting tax-motivated arrangements which have an impact on the UK tax position of a customer and the bank has some knowledge about the tax effect of the transactions or arrangements, excluding arrangements which a bank believes are widely available in the market. It will be for the bank to demonstrate that such arrangements are widely available.
  • The bank is acting in conjunction with a 3rd party promoter who is marketing arrangements which have an impact on the tax position of a customer and the bank has some knowledge about the tax effect of the transactions or arrangements. For example, this would include the situation where a bank agrees with a promoter to source customers or to provide finance to participators in a marketed avoidance scheme and does so with some knowledge of the effect of that avoidance scheme.
  • The bank is acting in conjunction with an overseas affiliate who is marketing arrangements which have an impact on the UK tax position of a customer and the bank has some knowledge about the tax effect of the transactions or arrangements, even if this falls short of complete understanding of the tax provisions engaged and their intended application to the transaction. This would include situations where the bank is actively involved in advising, sourcing customers or setting up the arrangements with the overseas affiliate.
  • The bank actively engages with a customer to design or tailor a financial structure or transaction which has an impact on the tax position of a customer and the bank has some knowledge about the tax effect of the transactions or arrangements (that is active and intended engagement in the customer’s tax planning)
  • The bank is providing lending or other facilities to a customer on terms which vary significantly from standard market terms, either in respect of the fees (e.g. incorporate an element of the tax advantage sought, or are significantly above market rates) or the structure of the facility provided and the bank has some knowledge about the tax effect of the transactions or arrangements. This would not include standard commercial leasing arrangements.

The Code requires that the bank’s governance arrangements are sufficient both to identify these transactions and to reach a reasonable decision on whether the tax advantage from the transaction was intended by Parliament.

HMRC does not consider that the Code would in the normal course of events cover transactions where the bank is providing lending facilities or other banking services to customers which do not vary significantly from standard market terms. In circumstances where a bank is facilitating (not designing/tailoring) a one-off, bespoke, transaction which may not have directly comparable market rates, HMRC’s view is that this will not be covered by the Code unless, for example, the fees include an element of the tax advantage sought. Therefore, a bank is not obliged to enquire into lending transactions or other banking services where these are on standard terms or where non-standard terms are not obviously to allow a client to achieve an unintended tax benefit, if it is neither promoting (or acting in conjunction with a 3rd party promoter) nor taking an enhanced fee or margin linked to the customer’s tax benefit.

A bank may be compliant with the Code, but could still be a financial enabler or an enabling participant to abusive tax arrangements (F(No2)A17/SCH16). More information on this can be found in the guidance[ https://www.gov.uk/guidance/tax-avoidance-enablers-who-is-classed-an-enabler] on what makes a person an enabler of tax avoidance. Further information can be found in BKM509400.