Barclays’ Spanish division under suspicion over dividend tax fraud

By Julia Pastor, in Madrid | Problems for Barclays are multiplying. Added to the Libor scandal in the United Kingdom and the United States, it has been revealed on Monday morning that the Spanish ministry of Finance is performing a fiscal investigation on the bank’s national subsidiary practices of dividend or coupon tax fraud. According to the daily Expansion, which has the scoop, Barclays Capital would have started to avoid taxes on dividends at the end of 90s, although it would be some years later when they developed these operations more aggressively.

These allegedly rogue practices are planned to help clients to avoid paying charges on the revenues coming from the dividends. They work as follows: when the time to receive the dividend is near, the bank transfers the stock ownership temporarily to an entitity with a tax system lower than the initial holder’s. Once the dividend has been paid, bonds or shares come back to their first owner’s hands.

Government as well as bank sources have explained that the case is a global and routine investigation, that began at the end of 2011, covering Barclays Capital fiscal management during the four years previous to that year. Sources also have confirmed the British bank’s branch in Spain is worried and suffering “ a great deal from anxiety” about the consequences of the inspection, since the person responsible, Pedro Santaella, was promoted by the recently resigned Barclays’ CEO Bob Diamond.

Currently, taxes on capital gains in Spain move between 21% and 27% depending on the volume of obtained revenues, but in the period that Spain’s ministry of Finance is investigating Barclays Capital it was sligthly lower, between 19% for the first €6,000 and 21% for further amounts. The operations analised by the State finance department are the ones subject to this last tranch because of the volume of money they involve.

The revelation of this news in Spain coincided with the day that Jerry Del Missier and Adair Turner, Barclays’ chief operating officer and FSA’s president, respectively, speak in the House of Commons to give explanations about the manipulation of libor between 2005 and 2009. This case has already cost Barclays a €363 million fine as well as its CEO resignation. On the other hand, one of the board of directors’ seat of Barclays’ Spanish division is occupied by the former minister for the Economy, the socialist Pedro Solbes, since mid 2011.