For more than a decade, Barclays has avoided nearly £2 billion in tax thanks to a lucrative arrangement in Luxembourg that allowed it to pay less than 1% on profits earned in the tax haven.
According to a Guardian analysis of Barclays' tax bills, the bank is still reaping the benefits of a contentious decision made in 2009 to book profits from the $15.2 billion sale of a fund management business in Luxembourg rather than the UK, where it is based.
Barclays was able to take advantage of a complicated scheme that allowed it to offset future profits against a drop in the value of company shares it acquired as part of the deal by booking the profits overseas.
The decision has resulted in Barclays earning billions of pounds nearly tax-free for more than a decade, raising questions about whether it influenced the bank's decision to invest or grow its Luxembourg business at the expense of other locations, including the UK.
"These revelations that Barclays is using a scheme in an infamous tax haven leaves the British-headquartered bank with important questions to answer," said Margaret Hodge, a senior Labour MP.
"Why is Barclays setting up shop in Luxembourg at all, other than to avoid tax? Does this artificial financial arrangement mean that profits are shifted away from the UK, thus harming our tax coffers? Or have business investments been channelled through this tax haven instead of in Britain, harming our economy in the process?"
With a turnover of £1.1 billion last year, Luxembourg is Barclays' third most profitable jurisdiction after the United States and the United Kingdom. Because of its low staff costs, Barclays can profit from nearly all of its corporate and investment banking revenue.
The bank employs nearly 10,000 people in the United Kingdom and 46,000 in the United States.
According to annual tax documents released by the bank, Barclays' Luxembourg operations have profited £6.6 billion since 2013. It has only paid £46 million on those earnings, or about 1%, thanks to the generous tax arrangement.
If it had not taken advantage of rules allowing it to offset losses related to $9 billion in shares acquired through the sale of its Barclays Global Investors (BGI) business to US fund manager BlackRock in 2009, Barclays could have been taxed between 25 and nearly 30 percent.
It means the bank could have saved £1.8 billion in tax over the period, though the total savings are likely to be much higher because it only began disclosing country-by-country tax data in 2013 to comply with EU regulations. The tax arrangement was first revealed by Reuters in 2016, but the extent of the benefits was unknown.
Barclays has never mentioned the BGI deal in its annual tax reports, but has long claimed that its low tax bills are due to previous losses.
"We paid no corporation tax in Luxembourg in 2021 as our taxable profits were offset by substantial tax losses brought forward from prior years, and also due to dividend income not being taxable under Luxembourg law," the company stated in its 2021 annual report. "We have unused tax losses which are automatically carried forward, and available to offset against future taxable profits."
"The structure of the BGI sale was not aimed at securing a tax reduction but intended to secure a simpler and more certain tax treatment and avoid volatility in the bank’s regulatory capital," Barclays said in a statement. It stated that it had not booked any profits from other jurisdictions in Luxembourg and that it had paid more than £14 billion in taxes in the United Kingdom over the previous decade.
Barclays' Luxembourg operations, which began in 2007, have previously sparked debate. In 2013, the bank's former CEO, Antony Jenkins, promised to close a unit in the Grand Duchy that helped wealthy customers avoid paying taxes.
The bank was making around £1.4 billion in profits at the time, about £100 million for each of the 14 employees. The unit is closure resulted in a drop in local profits in subsequent years, reaching £318 million in 2018.
Barclays, on the other hand, announced new investment in 2019, boosting profits to more than £1.1 billion by 2020. Despite only increasing to just over 50 employees, it involved expanding services for its multinational clients.
Today, the bank operates out of Luxembourg, where it says it focuses on serving local clients and provides cash management, debt, foreign exchange, and trade finance services.
By fLEXI tEAM