Labour and Tories Unite over Tax Avoidance
Information from Reuters has brought to light the fact that five of the biggest banks operating in the UK (and worldwide) paid not a penny in corporation tax in 2014. Efforts to crack down on this kind of corporation tax avoidance have brought together Westminster’s political right and left.
Deutsche Bank, Bank of America Meryll Lynch, JP Morgan and Nomura Holdings all managed to offset various past losses against their multi-billion dollar profits for 2014 and got away with paying absolutely nothing in corporation tax.
A further seven banks, including Goldman Sachs, paid a total of £20 million in corporation tax in 2014, despite making a profit of £3.6 billion (and a total revenue of £21 billion). These seven banks reduced their tax bills by offsetting losses made during the financial crash back in 2007-08 against them.
The reports and subsequent investigations did make it clear that all of this was done in accordance with UK tax laws that do often lead to tax payments seeming irregular since they are allowed to reflect losses (or profits) from years gone by.
Investec’s Laura Lambie highlighted this, saying that with most of the banks in question, the tax bills were low or non-existent “because they have big losses carried forward from previous years.”
Indeed, the fact that this was all done in theory legitimately has caused politicians in Westminster to take a serious look at our tax laws in order to see if anything can be done to eliminate underpaying of corporation tax in the future.
Ms Lambie did point out that the banks in question do still, in various ways, produce a rather large amount of revenue for the UK. For example, the banks’ staff pay income tax and the various fines that banks have been subject to (for Libor rigging and general mis-selling of products) brought money into the treasury. However, what Lambie emphasised what was she described as “a kind of moral issue”.
And further, she said, “in the case of Deutsche, there are questions as to why it’s not paying UK tax,” beyond the offsetting of previous losses.
In his 2014 Autumn Statement, George Osborne limited that level to which banks could offset previous losses against current tax bills to 50% of the banks’ profits in the year in question. However what has not changed is the fact that the UK (rather uniquely in terms of other countries) does not place any limits on how recently a loss must have been incurred for it to be then offset against tax bills.
However, he also, this year, announced that corporation tax itself would be cut back, to 19% in 2017, and down to 18% by the year 2020. The current rate is 20% which is down from a peak of 28% back in 2010.
All of this, and general recommendations from G20 regarding the crackdown on corporate tax avoidance, has led MPs to set up meetings a debates on whether or not the entire corporation tax system should be restructured.
The proposal is based on the belief that tax on corporate profits is, as it stands, both unfair and far too easy for larger companies to avoid altogether. The idea, then, would be to scrap traditional corporation tax and to replace it with a different system altogether.
The group considering the proposal is made up of members of both the Labour party and the Conservative party and will be meeting in the near future to discuss plans.