The high-street bank faces criticism for its complex tax accounting.
In these days when our banks should ideally be trying to look as squeaky clean as they can, Barclays (LSE: BARC) is coming under pressure over the accounting measures it uses to minimise its tax bill.
Under UK accounting regulations, companies can carry forward losses from one year to set against future years' profits, and thus reduce the amount of tax they have to pay -- and that's generally accepted as fair. But when people see large companies exploiting offshore tax havens and complicated company structures to lower their tax bills, it's not surprising that they might get a little miffed.
Royal Bank of Scotland (LSE: RBOS) has racked up £4.2bn in "deferred tax assets", with Lloyds (LSE: LLOY) managing a total of £6bn, which can be carried forward to offset future profits. But at least in these cases, they were the results of actual record losses.
Barclays, meanwhile, has accumulated over £3bn in such deferred assets, even though it has not recorded an overall group loss for more than 10 years. In fact, the group made £6bn in pre-tax profits last year, while at the same time accumulating £591m in tax assets from recorded losses of around £2bn in British, American and Spanish subsidiaries.
Barclays has also operated hundreds of subsidiaries in tax havens, and as recently as 2009 only paid £113m in UK tax.
Unfairness?
So it's understandable that the bank is attracting criticism, especially as it is part of the industry that helped get us into our current mess in the first place. But is it fair criticism?
After all, Barclays does stress that it is fully compliant with UK tax regulations. And which of us would not use whatever legal means we could to minimise our tax bills?
As consumers facing tight belts and higher inflation, we can fume about the tax avoidance policies of the banks, but there's an important question we need to ask -- to whom are the banks responsible?
Barclays' primary responsibility is not to its customers and not to UK taxpayers -- it is to its shareholders. in fact, the only reason for the existence of the company's board of directors is to maximise its shareholders' profits by whatever legal means it can.
Do you think taxation laws are biased towards the big shots and unfair to the little people? You may be right. And do you think it's wrong that companies like Barclays can use complicated subsidiary accounting to carry over tax losses while making an overall profit? You might have a point.
But our ire should be directed at the UK's accounting and corporate tax regulations, not at Barclays' accountants -- they're just doing what they're supposed to do.
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