Barclays Presses Case against California Taxation Practice

By Kraus, James R. | American Banker, October 19, 1993 | Go to article overview

Barclays Presses Case against California Taxation Practice


Kraus, James R., American Banker


Barclays Bank PLC, the British clearing bank that has been waging a decade-long legal battle with California over taxes, plans to continue its fight despite California's decision to revise its tax code.

On Thursday, the bank filed a brief with the U.S. Supreme Court requesting that the court hear its case against California's unitary tax law.

"Barclays believes that the recent legislation passed in California, adopting a |water's edge' approach to the taxation of foreign companies with operations in the state, does not completely resolve the long-running issue," the bank said in a statement on Friday.

Back Taxes Due

"The basic constitutional right of California, or any other state, to impose a unitary tax system at any time in the future still remains," the bank added.

"There are also substantial amounts of back taxes due to the bank and to other U.K. companies."

The Clinton administration last week sided with California, urging the Supreme Court to deny an appeal by the bank that challenges California's method of taxing foreign-based multinational corporations.

The administration's action makes it less likely that the Supreme Court will consider an appeal filed by the London-based bank challenging the state tax.

At the heart of the dispute between Barclays and California is the state's policy of taxing subsidiaries of foreign-based multinationals on the total income of the parent companies and all affiliated units.

Risk of Paying Twice

This method assesses tax on a company by applying the percentage of payroll, property, and sales receipts in the state to that company's worldwide income.

Intended to prevent multinationals from shifting taxable income to the lowest-cost location, the legislation has aroused protests because it can lead to double taxation.

Foreign multinationals, led by Barclays, have legally contested the legislation because they say it violates the federal government's constitutional monopoly on regulating foreign commerce, while Britain has threatened to retaliate by imposing similar taxes on U.S. companies on Jan. 1.

The administration sided with California after the state legislature this month approved changes in the tax code that allow foreign multinationals to avoid the combined approach.

|Water's-Edge' Treatment

The legislation allows foreign banks to be taxed on a so-called water's-edge basis. …

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