The man who took control of scandal-ridden UK bank, Barclays this year faced an uphill struggle after being tasked with revamping the public image of a company in a sector where success is inexorably linked to efficiency and profitability.
Jenkins moved swiftly to shut down Barclays' Structured Capital Markets (SCM) business tax advisory unit as one of the first steps in his strategic review of the bank’s operations and culture. The SCM unit was a highly profitable part of the Barclays Group and had been referred to by some parts of the mainstream media as its “tax avoidance unit”. Jenkins thus signalled his commitment to change by putting down a marker that cost the bank around £500 million ($780 million) in lost revenue according to the strategic review presentation that accompanied the announcement of the SCM closure.
“There are different components to the tax services that we have provided clients historically. Many of those are not controversial - delivering value as part of real client transactions - and we will continue to provide such services,” said Jenkins. “However, there are some areas that relied on sophisticated and complex structures where transactions were carried out with the primary objective of accessing the tax benefits. Although this was legal, going forward such activity is incompatible with our purpose and incompatible with the new tax principles we are publishing today. We will not engage in it again.”
The list of tax principles require the bank’s tax activities to:
- Support genuine commercial activity;
- Comply with generally accepted custom and practice, in addition to the law and the UK Code of Conduct of Practice on Taxation for Banks;
- Be of a type the tax authorities would expect;
- Only take place with customers and clients sophisticated enough to assess its risks; and
- Be consistent with, and seen to be consistent with, our purposes and values.
These principles, along with Jenkins’ stated desire to be “industry-leading” in providing greater levels of transparency and disclosure around his bank’s financial reporting, have confirmed that the reputational risks attached to their tax affairs are now an issue of the utmost importance for multinationals, particularly those in the banking sector.
Jenkins’ influence comes in being an advocate for image change and his list of tax principles outlined above is likely to become a template for others in the industry.
However, despite the rhetoric of its CEO, Barclays continues to find itself in the firing line of tax justice campaigners. A November report from ActionAid accuses the bank of promoting the use of tax havens in Africa and calls on Jenkins to close down its offshore corporate department.
ActionAid has even polled Barclays’ customers to gauge their opinion of the bank’s practices: 57% of Barclays customers polled said it is unacceptable for the bank to provide services that help large multinationals reduce their tax bills in developing countries, while 21% deemed it acceptable.
This highlights the importance of companies making a lengthy commitment to the policy changes they announce, and Jenkins’ continued influence in the world of taxation will be judged on his commitment to the principles he has laid out for his bank.
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