The British comic actor Kenneth Williams, maybe best known for his immaculately campy roles in the “Carry On” films, would sometimes give himself private sexual pleasure and record in his diary that he’d had “the barclays.” This bit of rhyming slang (Barclays Bank = wank) pretty much describes the attitude of the British public towards banks after the 2008 financial crisis, when financiers’ greed and stupidity nearly wrecked the global financial system. Some people used to joke that the collective noun for bankers was a “wunch”.
Barclays could be seen as the epitome of the pre-crisis investment bank – flash, full of cash and more than slightly dodgy. The bank had a “Structured Capital Markets” unit which, according to the Guardian back in 2011, “created multibillion-pound deals which routed vast amounts of money in elaborate circles through offshore networks – with the prime purpose of magic-ing profits out of tax credits.”
Barclays decided to close the unit, resulting in less of the bank’s profits being booked in the tax haven of Luxembourg. In 2014 Barclays began to voluntarily publish country-by-country reports of its turnover, profits, taxes paid and other items, a year ahead of the coming into force of an EU directive requiring this information from all financial institutions in the European Union. The bank calls these reports “Country Snapshots” and you can find them on its website.
One of the main purposes of country-by-country reporting (though not its only purpose) is to show how much profit a multinational corporation is booking in tax havens. Evidence of profits booked in tax havens is not necessarily proof that tax on those profits has been avoided somewhere else, but it is a clear signal that a closer look might be warranted. Thanks to Barclays’ early start, we can now look at six years’ worth of figures to find out what they tell us about the bank’s use of tax havens.
I typed Barclays’ figures into a spreadsheet and calculated some basic ratios to see what might have changed since 2013, the first year covered in the data. There is no universally accepted definition of a tax haven so I’ve used the following list which is mostly culled from Oxfam reports. So the list is: Guernsey, Hong Kong, Ireland, the Isle of Man, Jersey, Luxembourg, Mauritius and the Seychelles (until Barclays’ exit from Africa in 2017), Monaco, the Netherlands, Singapore, Switzerland, and the United Arab Emirates.
Indeed, there are some interesting findings:
- Barclays reported just under 20 per cent of its global pre-tax profit in tax havens in 2018, compared to a whopping 94 per cent back in 2013. “Just under 20 per cent” is still a great deal of profit, but it’s significantly less than “almost all the profit”. By way of comparison, a team of researchers have recently suggested that multinationals as a whole are shifting about 40 per cent of their profits into tax havens. So all things considered, the change since 2013 might be taken as an encouraging sign that the risk of tax avoidance by the bank may have decreased.
- The most important tax havens for Barclays, in terms of booking profit, are (still) Luxembourg and the British Crown Dependencies of Jersey, Guernsey and the Isle of Man, which together accounted for 15 per cent of its global profits in 2018. This is still a staggeringly large amount for tiny markets like these. The same number in 2013 was 80 per cent, of which 48 per cent was booked in Luxembourg.
- You can find other interesting things in the data. Barclays books less profit than it used to in Hong Kong, Singapore and Switzerland and slightly more in Monaco where its private banking unit is utterly profitable but, perhaps unexpectedly, reports a relatively high tax rate of between 15 and 26 per cent. The Netherlands, one of the world’s top corporate tax havens, is far less important for Barclays than the Isle of Man, a backwater tax haven also known for motorbiking and cats with no tails.
(I asked Barclays if they would like to comment on these findings and they said they wouldn’t.)
Luxembourg is still very important to Barclays’ global profits, despite its having only a few dozen staff there compared to the tens of thousands employed by the bank worldwide. Barclays’ turnover in the duchy, now a quarter of what it used to be, is still almost pure profit and the bank still pays almost no income or withholding taxes on it. In Jersey and the Isle of Man, by contrast, the bank has paid an average tax rate of 7-8 per cent since 2013 (and a similar rate for its relatively small but highly profitable business in Ireland).
Barclays attributes its zero tax rate in Luxembourg in 2018 to some of its income arising from foreign dividends (which may have been paid out of profits that were taxed in other places) and tax on some of the income being offset by past losses. The question of how all this income is generated in the duchy is beyond the scope of this blog post. Based on these numbers, however, any tax authority in a country with a Barclays might want to look quite closely at its dealings with the Luxembourg operation, if it hasn’t already.
There is a lot more information in the Country Snapshots than I can hope to summarise here. In the interests of fairness I’d encourage you to read them to get a sense of how the bank explains and defends its tax practices, rather than drawing conclusions based solely on what I say here. The takeaway point is that country-by-country data really is informative and not just about taxation but also about other issues, such as the relative profitability of different markets for a corporation.
So Barclays is booking less profit in tax havens. But is it actually paying more tax around the world? A recent study published by Oxfam, which I co-researched and largely wrote, finds that over the longer term the answer seems to be yes. This research found that Barclays’ global (cash) tax rate was pretty low in the decade before the financial crisis – between 22 and 25 per cent, at a time when headline rates in most major economies were above 30 per cent – but has been much higher in recent years. In fact between 2013 and 2017 this tax rate averaged a pretty hefty 48 per cent, according to the averaging method used in our study. (You get 47 per cent if you use the numbers from the Barclays reports).
Now, there are all sorts of reasons for Barclays might have paid more tax in recent years which are not necessarily to do with tax havens, such as higher taxes on banking in the UK. And as we know, correlation is not the same thing as causation. Nonetheless, it can only be encouraging to find such signs that a bank which was once a byword for sharp tax practice may, at least to some extent, have reined itself in.