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Thursday
May122011

Banks fear tax avoidance 

Banks are becoming much more cautious when it comes to lending.  And this is not solely due to the banking crisis. Companies are suffering due to the existence and potential misuse of the tax avoidance arrangements. In an attempt to encourage responsible and halt the funding of tax avoidance schemes the (then) Labour government introduced new lending protocols.  As a result, companies are having to go extra ordinary lengths to prove that their capitalisation or re-capitalisation attempts are not cleverly designed tax avoidance schemes.

Partner at Messrs MacIntyre Hudson Nigel May has warned that the problems attached to the lending rules, defining what is and what is not tax avoidance, is creating tension in the legal departments of banks up and down the UK. Banks are increasingly being called in to the "relatively alien landscape of tax law". The result is an overly cautious approach when agreeing lending.  Mr May is quoted as saying: "The current environment in dealing with the banks is in any case really quite difficult,". There are cases where there is nothing at all unusual about the company's structure yet the company is required to go to unusual lengths to demonstrate that they are not engaging in tax avoidance.

Mr May is quoted as saying: "I think it is well accepted that normal tax planning is not synonymous with tax avoidance. But it is quite difficult to get the banks to see in practice which side of the line a proposal falls". Other agents are are also encountering similar problems. BDO tax partner Stephen Herring is quoted as saying: "Banks are starting to ask more questions about the validity of certain positions," He goes on. "I had a letter today asking us to reconfirm the tax position of one of our clients. In my view, banks are increasingly unwilling to participate in aggressive, pre-packaged tax avoidance schemes which they have not reviewed."

Prudent, legitimate tax planning and tax avoidance are not the same thing. Whether you are a UK company or an Off-Shore partner, St Matthew will provide the services that ensure you operate profitably and legally. For more information please go to http://stmworldwide.com/offshore-solutions   

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