Alistair Darling was challenged by MPs over claims of 'cynical tax avoidance schemes' by Lloyds Bank despite promising further moves to halt corporate tax abuse, according to reports.
The chancellor would not confirm whether the government was aware of the alleged schemes before bailing out the bank, reports The Guardian.
HMRC was litigating against the now 43% government-owned bank over hundreds of millions of pounds of loan transactions to other financial institutions.
Raising the Lloyds allegations at question time, an MP enquired about HMRC's investigation into the bank for 'double dipping and tax avoidance via Cayman Island companies'.
He asked Darling what access the government had to Lloyds' books before pumping billions of pounds of public money into the ailing institution. He also questioned "whether any conditions, such as an end to all tax avoidance activity, were attached to our cash being used to save a bank".
Although the chancellor said there was a limit to what he could say as the matter was before the courts, he admitted the double dip scheme was shut down by the government in 2005.
"From 2004, schemes of this sort do need to be reported to HMRC to make sure if there is abuse or any unintended consequences that are harming the taxpayer, action can be taken promptly."
He pledged to ensure that any loopholes will be closed and take necessary action at each budget.
At a previous tribunal, Lloyds was accused of using a Hill Samuel Investments subsidiary to funnel hundreds of millions of pounds into tax avoidance schemes across the Atlantic.
The double dipping allowed millions of pounds of income received in the UK as distributions from US investments to be granted tax relief as it was assumed US tax had already been paid. However, the cash was also granted tax relief in the US as it was treated as interest payments on a debt.
Lloyds declined to comment on fresh allegations it had arranged £4bn of loans with similarities to the disputed tax avoidance schemes. It was also unable to explain loans discovered by The Guardian which were issued by four subsidiaries, three of which were registered in the Cayman Islands.
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