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The bank in question might have cost the taxpayer billions of pounds in lost income
A bank in the UK has been forced to pay more than half a billion pounds in tax which it had dodged by using "highly abusive" tax avoidance schemes.
The government said it would change the law retrospectively and immediately to stop anyone else using similar methods.
The tax dodge involved the bank claiming it should not have to pay corporation tax on profits made when buying back its own IOUs.
The identity of the bank has so far not been revealed.
Announcing the crackdown, the Exchequer Secretary to the Treasury, David Gauke, said the bank should never have devised the scheme in the first place.
"The bank that disclosed these schemes to HM Revenue & Customs (HMRC) has adopted the Banking Code of Practice on Taxation which contains a commitment not to engage in tax avoidance," he said.
"The government is clear that these are not transactions that a bank that has adopted the code should be undertaking.
"We do not take today's action lightly, but the potential tax loss from this scheme and the history of previous abuse in this area mean that this is a circumstance where the decision to change the law with full retrospective effect is justified," he added.
A second tax avoidance scheme, also designed by the same bank, has also been outlawed.
It involved investment funds claiming that non-taxable income entitled the funds to tax credits that could be reclaimed from HMRC.
The Treasury described this as "an attempt to secure 'repayment' from the Exchequer of tax that has not been paid".
A Treasury source suggested that outlawing the tax dodges immediately would save the government a further £2bn in tax that would otherwise have been foregone.
The banking code on taxation was first introduce by the Labour government in June 2009.
It followed reports that some big banks used large scale tax avoidance schemes involving complex transactions and financial instruments.
The code - which was supported by the incoming coalition government the following year - demands that banks which sign ensure that their tax and the tax obligations of their customers are observed.
It says they should not go out of their way to avoid tax for themselves or clients.
The biggest banks operating in the UK have signed up.
28 Feb, 2012
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Source: http://www.bbc.co.uk/go/rss/int/news/-/news/business-17181213
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