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The code of conduct will be published shortly. The intention is that all banks will sign up to it. It will be a voluntary code, but I am pleased to say that broad support has been indicated across all banks.
Some banks have attempted to avoid the intention of the double taxation relief legislation by separating foreign receipts from the expenses of earning them to maximise their double taxation relief claims, hence the fragmentation. One method has been to divert what is in substance trade income into investment subsidiaries that are not subject to the same requirements. Another is to purport to fund avoidance schemes involving receipt of foreign income with money that does not have an associated funding cost, such as customers deposits in non-interest bearing current accounts.
The clause will amend rules introduced in the Finance Act 2005, as hon. Members have said. That legislation is working well, but the clause will clarify its intention by putting two matters beyond doubt. First, where there is an avoidance scheme, the assumption is that any income received by a member of a banking group is trade income, unless that assumption is not reasonable. Secondly, a banks funding costs should always be taken into account when calculating the double taxation relief due.
The clause will apply to avoidance schemes, and I believe only to avoidance schemes. Its effect in all cases will be to ensure that a fair amount of tax credit is given. There are no circumstances in which double taxation relief should be given without regard to bank funding costs, so a restriction to avoidance schemes or arrangements is not necessary. My concern about amendment 218 is that, since the aim of the clause is to put the matter wholly beyond doubt, the additional requirement that it applies only in cases of avoidance would be an unnecessary obstacle to its proper implementation.