George Osborne challenged on 'unclear' bank fine tax rules
Chancellor George Osborne has been asked to clarify whether banks are offsetting the cost of fines they pay against tax to cut their tax bill.
Treasury Select Committee MPs raised concerns that banks fined millions for wrongdoing may be exploiting loopholes and "unclear" rules to pay less tax.
It is important taxpayers do not "bear the burden", committee chairman Andrew Tyrie told the chancellor in a letter.
The Treasury said it would respond to the letter in due course.
Under UK law, banks are not allowed to log fines they are forced to pay for mis-selling and other misconduct as a cost in order to reduce their profits and, in turn, the amount of tax they pay.
There are also tight restrictions about off setting compensation payments to customers against tax.
However, Mr Tyrie said it appeared in some circumstances banks were able to claim fines they paid to the regulator were tax deductable.
He called on Mr Osborne to confirm this was not allowed, as there appeared to be "some doubt" about the rules.
By Joe Lynam, business correspondent
In the early 1990s some firms had been deducting from their tax bill - i.e. treating as a legitimate expense - protection money paid to the Provisional IRA. The then Prime Minister John Major intervened and banned the practice. But there still remains no clarity on the issues of what can and cannot be deducted.
HMRC has issued guidance on the matter but, as you can see, the section under fines imposed by regulators still says (words to the effect of) on the one hand you can but on the other you cannot.
Even for tax experts, the question of whether mis-selling or fines imposed by the government or independent watchdogs can be considered a legitimate cost of business is unclear.
The Chartered Institute of Taxation has called for clarity from the government, which is exactly what the Treasury Select Committee also hopes to get in its letter to the chancellor today.
Mr Tyrie said it was "not just appropriate, but essential" that fines were not tax deductable.
"It is important that taxpayers are not required to to bear any part of the burden of any payment import by the FCA or overseas regulators. The bill should be picked up by the bank's shoulders."
If banks were "not happy about it", they had a number of possible remedies, including controlling employees salaries and bonuses, he said.
He also raised concerns that settlements reached with foreign governments were sometimes structured in a way that allowed payment to be offset against British tax.
He did not know whether this suggestion was well-founded, but if it was true it would be "alarming", he said.
In recent years, banks including HSBC, Royal Bank of Scotland, Barclays and Clydesdale Bank have been fined by the FCA over misconduct.