I am very worried for Barclays’ CEO Bob Diamond. I don’t think he’s securing the best tax advice that’s out there, and would like to recommend my own excellent tax adviser, the Alexandria, Virginia-based Braxton Moncure of Ross & Moncure, the accountant of choice of many journalists, foreign and otherwise, plying their trade in Washington DC.
From what I can see in the current brouhaha that’s erupted in London over Barclays helping Bob out by paying his U.S. taxes, he appears to be oblivious, as does Barclays for that matter, to the double tax agreement between the U.S. and the U.K. that protects anyone – peon like me to a master of the universe like Bob – from having to pay tax on both sides of the Atlantic on the same income.
For those of you who have not followed Diamondgate, let me briefly recap. This week, Barclays revealed that Bob had to make do in 2011 on a mere £17m in pay, shares and perks.
Of course, his compensation package underlined for many the scale of multimillion-pound pay deals still being handed out to top bankers.
But what has triggered even more fury is that Barclays paid £5.7m to cover Diamond’s U.S. tax bill. That disclosure came hot foot on the recent news that Barclays has been mired in a row with HM Revenue and Customs over a couple of tax avoidance schemes that were designed to save the bank about £500m.
The news of Bob’s nice tax perk prompted Liberal Democrat peer Lord Oakeshott to remark: “The only tax Barclays pays seems to be for Bob on his bonus.”
And some institutional shareholders – including Standard Life, Aviva and Scottish Widows – are threatening to vote against Diamond’s remuneration package at the bank’s annual general meeting later this month.
Their disapproval has mounted since the Association of British Insurers announced that the package possibly breaches corporate governance codes. The ABI is concerned about the scale of the remuneration package given that Diamond himself acknowledges the bank’s performance last year was “unacceptable”. In February, Barclays reported a three percent fall in profits. The Daily Mail has a nice little graph here showing how Bob has profited while the bank’s share price has tumbled.
And the association suspects that the decision by Barclays to pay UK tax authorities £5.7m on behalf of Diamond may fall foul of their guidelines that companies “should not seek to make changes to any element of executive remuneration to compensate participants for changes in their personal status.” Whether anything comes from shareholder ire, who knows. Last year, the ABI and some institutional shareholders protested at the remuneration packages of top Barclays executives but nothing much came of it.
Bob’s UK tax bill was incurred when he relocated from New York to London on his promotion to CEO in January 2011. The bank has an agreement with Bob to compensate him, if he has to pay tax on the same income twice — in the UK and US.
And this is where it gets all very odd. Why did Bob have to pay tax to both the US and UK on the same income? Since 1975 there has been a double tax agreement between the US and UK to prevent double taxation on income and capital gains. That agreement has been added to over the years and with big changes in 2001.
Presumably, using this treaty Bob did not have to pay any US federal income tax. And that may well have happened. But state taxes are not covered by the double-tax treaty.
Barclays has not been clear about what taxes Bob incurred that required him to pay tax twice on the same income, but it is likely that they were New York state and city taxes. The top New York state tax rate is 8.97% and the New York City rate is 12.62%. Capital gains and dividends are taxed as ordinary income. But long-term capital gains may be taxed differently.
But why was Bob paying these taxes? He relocated in January 2011 – U.S. tax years run in calendar years, unlike the UK, which runs April to April.
Under New York state regulations: An individual is a New York resident if one (1) of two (2) conditions is met: 1) If an individual is ‘domiciled’ in New York, such individual is a New York resident. And domicile is defined thus: “Domicile in general, is the place an individual intends to be his permanent home – the place to which he intends to return whenever he may be absent NYCRR 105.20(d).”
2) “If an individual is not ‘domiciled’ in New York, such individual is a New York resident if s/he both ‘maintains a permanent place of abode for substantially all of the taxable year’ and spends in the aggregate more than 183 days of the taxable year in New York. New York Tax Law § 605(b)(1)(B), New York City Admin Code Section 11-705(b)(1).”
So the questions start to multiply. Did Bob spend more than 183 days in 2011 in New York when he had officially relocated to London?
Why has Bob not made a declaration via an efficient accountant to the New York tax authorities that while he maintains a home in New York he doesn’t consider this to be his permanent home? Hence my urging that Bob speaks with my accountant, Braxton Moncure.
As Bob – a dual UK-US citizen – has not apparently, according to Barclays, claimed non-dom status in the UK, which he could easily do, it would be simple, as long as he is not spending more than 183 days a tax year in New York, to prove that he is no longer domiciled in the Big Apple.
So why hasn’t he done so? And whatever the reason, why should Barclays be paying up when Bob could easily get out of the tax liability? And should a man who can’t seem to navigate efficiently an easy international tax thicket be the CEO of Barclays anyway? Or is there more than meets the eye here?
Phone Braxton, Bob!