The Treasury Committee has today published a letter from the Chancellor of the Exchequer, George Osborne MP, regarding the retrospective tax action taken against Barclays in February 2012.
This exchange follows a letter from the then Chief Executive of Barclays, Bob Diamond, published on 28 May, 2012.
Regardless of the specifics of this case, retrospection conflicts with the principles that should underpin any fair and internationally competitive tax regime.
The development of a ‘Code of Practice on Taxation’, requiring banks to adhere to ill-defined standards in addition to the law, risks making the tax system even more ambiguous.
Before reaching for what some might consider the nuclear option of retrospection, we need to consider why the law is delivering so many unintended consequences.
There can be little doubt that those opportunities for avoidance - the unintended consequences - exist because the law is so complex.
There is, therefore, something that might be done about it: simplify the tax system.
In its response to the Committee’s Budget report, the Government confirmed that retrospection will be restricted to wholly exceptional circumstances. That must be right.
Better still, steadily reform and simplify the tax system to the point that the Government doesn’t feel the need to reach for retrospective legislation to protect the tax yield.