- BBA says taxing foreign subsidiary funding breaks promises
- Lobby group calls for levy to be cut faster than six years
Britain’s banks have criticized the U.K. Treasury’s plan to pare back the scope of the bank levy to lenders’ domestic businesses only, warning international operations could still be subject to taxation after the changes.
Under the government’s current proposal, funds raised at a U.K. holding company level and then passed down to an international subsidiary would continue to count toward the tax, the British Bankers’ Association said in a letter to Her Majesty’s Revenue & Customs. The lobby group said this structure “conflicts with the Chancellor’s stated aims to make sure the levy no longer catches worldwide balance sheets.”
In July, Chancellor of the Exchequer George Osborne said he would cut the levy over six years and then limit it solely to U.K. operations, bowing to pressure from banks such as HSBC Holdings Plc that had threatened to leave London. The levy was introduced in 2010 after the government provided 1 trillion pounds ($1.6 trillion) of support to prop up the nation’s financial system during the crisis. HSBC decided to keep its headquarters in London last month after a 10 month review, crediting in part the Treasury’s reversal.
“There is some work to do in respect of subsidiary funding by U.K. headquartered banks to ensure that the stated aims of the re-scoped levy are genuinely met,” David Wren, the BBA’s tax policy director, said in the letter. “If the base on which the levy is charged is not substantially reduced for U.K. headquartered groups, there should be a desire on all sides to revisit the rules.”
The BBA, which represents both British banks such as HSBC and foreign lenders including JPMorgan Chase & Co., also called for the levy to be reduced over a shorter period than six years, “preferably within the current parliament,” which lasts until 2020. The lobby group petitioned the government in the letter dated March 4, which was seen by Bloomberg News. A spokesman for the lobby group confirmed the details, which were previously reported by the Financial Times.
The request comes ahead of Osborne’s budget speech on March 16, where he is expected to unveil more austerity measures to meet a legally binding pledge of a fiscal surplus by the end of the decade. Reducing taxes in the current environment would be difficult for the Chancellor, who is dealing with a weaker economy than forecast and lower tax revenues as a result.
To offset the reduction in income from narrowing the catchment of the levy to domestic assets, the Treasury introduced in July an additional 8 percent charge on banks’ profits on top of their regular corporate tax starting. The BBA also sought assurances this would be phased out over time and return to “normal levels.”
“The banking tax surcharge should be seen as a temporary measure to deliver consistent corporate tax receipts in the short term and would be phased out in the longer term,” the BBA said. The government should indicate “it is not a permanent measure which would reduce the competitiveness of the U.K. when compared to other markets.”
The tax debate comes against the backdrop of a possible U.K. exit from the European Union, with a referendum on membership being held in three months. Bank executives have said the disruption caused by Brexit and loss of access to markets would result in banks moving operations away from London. HSBC said it would move 1,000 investment bankers to Paris if the U.K. votes to leave.