HSBC faces potential £3bn UK tax bill if it loses HM Revenue and Customs case

http://www.guardian.co.uk/business/2012/feb/28/hsbc-tax-bill-dispute-hmrc

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HSBC, the UK's biggest bank, has admitted it faces a potential tax bill of up to up to $4.9bn (£3bn) if it loses an ongoing case with HM Revenue and Customs.

While unrelated to the sudden move on Monday by the Treasury to clamp down on two tax avoidance schemes, the admission comes as the government looks for all opportunities to ensure the exchequer is not missing out on tax.

HSBC disclosed in its annual report that it was involved in a dispute with the government over the way it pays tax on dividends from its Asian operations.

The dispute focuses on a decision by HSBC to hold shares in its Asian and some European subsidiaries through a Dutch company, which it has done since moving its main holding company to the UK. HSBC believes it should not pay UK tax on dividends it receives.

However, HMRC argues that the bank, through its controlled foreign company rules, should pay tax in the UK, as rates in the Netherlands are lower.

The dispute covers the period from 2002 to 2009. "In the event of an adverse outcome from our ongoing discussions with HMRC on the CFC and other open tax issues, the tax payable and financial impact could be as high as $4.9bn, plus related interest expense," HSBC said.

HSBC stressed that the matters were still being discussed with HMRC, which refused to comment.

HMRC has faced criticism for its handling of the tax affairs of major companies. In December MPs accused the tax authorities of using "a veil of secrecy" to keep from scrutiny their "sweetheart" corporate tax deals worth billions when the commons public accounts committee said it had uncovered "specific and systemic" failures in Britain's tax-gathering agency while investigating deals with Vodafone and Goldman Sachs.

The committee chair, Margaret Hodge, accused HMRC of making a "policy decision" not to disclose information and using a "veil of secrecy" by citing "taxpayer confidentiality", which denied accountability to the public or parliament about whether deals provided good value for money.

The MPs found that owing to a "mistake", admitted by HMRC, Goldman paid up to £20m less tax than had been due on its bonus payments. Vodafone settled a long dispute by paying £1.25bn, but the committee heard allegations that the tax bill should have been £6bn or more.