The banks are in the news again.  This time Barclays is being publicly berated for supposedly not paying enough tax.  The headline on BBC Breakfast made reference to Barclay’s “Offshore tax arrangements” in a clear attempt to leverage the anti-bank feeling and grab attention. Online, in a more detailed story, the BBC did give a slightly more balanced opinion and quoted the real figures

So what is the issue with Barclays’ tax bill?

Barclays is an international company. All international companies operate via local subsidiaries, each of which makes corporation tax payments to the government of the country where they reside.  International companies also have a head office located in the country of incorporation, or residence.  Invariably this large head office function, which guides and administers the group as a whole, has no revenues of its own – so makes a loss.  The group as a whole will report the sum total (consolidated results in accounting terms) of all its worldwide entities including the taxation paid by each subsidiary.  It will also pay its own local taxation on any profits made in the local country.

Barclays is no different from any other international company.  It operates in fifty countries and territories around the world, and it is liable for corporation tax in each of those countries.  It also has a large UK-based head office function that costs about £750M to run. Making a comparison of the UK-only corporation tax figure to the worldwide profit figure is complete nonsense.  The worldwide corporation tax figure is £1.5 billion and represents 25% of the worldwide profit.

The single-figure percentage quoted by the press is a deliberately misleading, headline grabbing, distortion designed to simply gain attention.

All around us are businesses that are globally owned but have local operations.  For example, EDF Energy, Ford and Microsoft to name but three.  Each one of these organisations pays local corporation tax on the local profits.  Ford, for example is US-owned but will have to pay corporation tax to the UK government for any profits made in the UK.

If you think Barclays should pay all it’s £1.5Billion international tax bill to the UK government then you have to accept that Ford, GSK, Vauxhall, IBM etc.  should pay all their UK tax to the US government instead.

However, EDF Energy, Ford and Microsoft etc. are not being hauled across the coals when some of them are much better at avoiding tax than Barclays.  For example, why isn’t anyone making a big issue about how Microsoft, Dell etc all operate their UK businesses out of Ireland in order to avoid paying UK taxation?

The issue for the banks is that the press, the politicians and the pressure groups are massively more advanced in their communication skills.  Each time I see a banker on TV or read a city press release I squirm at the naivety of it all.  This current fiasco is just another example of the banking community’s total incompetence at the art of communication and managing the message.  Barclay’s response to this storm-in-a-teacup has been a poorly worded and inaccurate press release along with a financial results document with the real tax figure buried on page 82 – and it is a very boring, technical document.

The banks still don’t understand that there came a point in late 2008 when they became public property – both literally and metaphorically.  What they needed to do was wake up to the looming 21st century, understand that the game has changed, embrace their obligations to society, and learn how to engage.  What they did instead was hide.  Staff were told to remove all reference to their employer from any social media and not tell the public where they worked.  They shut themselves away in their glass towers and hoped that it would all blow over.  Even now, they still look surprised each time they come up for scrutiny.  They struggle to convince us that “they are local and they care” but the imagery is so last century – who really wears neck scalves?

Imagine instead a world were each local bank had a local facebook page that engaged with and commented on local issues.  That “liked” other local businesses and made a made a real contribution to society through open communication.

If they could do that, get their head around the 21st century social media world, take command of the message rather than being it’s victim, then they might start to get some better press.