Foreign banks in Britain pay fraction of corporate tax rate
Shadow finance minister says ‘alarmingly low’ rates for banks making huge money
London-based Goldman Sachs Group UK reported a $194 million profit in the Cayman Islands.
Some of the biggest foreign investment and commercial banks operating in Britain paid an average tax rate of just 6 per cent on the billions of dollars of profits they made in the country last year, an analysis of regulatory filings shows.
That is less than a third of Britain’s corporate rate of 20 per cent. There is however nothing illegal about how they managed to reduce their taxes, and includes using losses built up during the financial crisis to offset current bills.
Seven of the biggest international banks operating in London – Europe’s main investment banking centre – have published profit and tax data ahead of a year-end deadline stipulated by EU law.
Five of them, all US banks, reported a profit – a combined $7.5 billion (€7.1 billion) – and paid corporation tax of $452 million.
Bank of America’s two main UK investment banking subsidiaries paid no corporation tax on combined profits of $875 million. JPMorgan paid $160 million in tax on $3.3 billion in UK profits.
Tax compliance requirements
Goldman Sachs paid $256 million tax on $2.8 billion profit, while Morgan Stanley’s main UK unit paid $33 million tax and earned $530 million.
All the banks declined to comment on the data except San Francisco-based Wells Fargo, which reported $2.7 million tax on $34 million profit. It said its objective was to comply with all of its tax compliance requirements.
The British Bankers’ Association (BBA) said the data did not reflect the sector’s full contribution and that, including other taxes and payments, foreign banks contributed about $20 billion to the UK treasury last year.
The British tax authority, Her Majesty’s Revenue and Customs, declined to comment but has previously said it makes sure that all companies pay the tax due under the law.
The finance ministry was not available to comment.
The 6 per cent rate is still higher than the average rate of 1 per cent paid for 2014 by the 10 biggest foreign investment and commercial banks that reported UK profits and taxes.
British banks also disclose profit and tax amounts but these are largely related to domestic retail activities, so it is not possible to calculate the effective UK tax rate on their commercial and investment banking activities.
Analysts say many other companies pay tax at below the headline rate but only banks are required to disclose tax and profit figures by country, so it is not possible to calculate the rates paid by manufacturers, builders or services companies.
The opposition Labour Party said the figures showed that the government was still going soft on the banks, years after saving the sector from collapse with taxpayer funds. “These again look like alarmingly low tax rates for banks which are making eye-watering amounts of money,” said shadow finance minister John McDonnell.
“This shows that this government wants to create an environment in which big firms get tax giveaways while everyone else gets spending cuts.”
Bank of America said in a filing that its Merrill Lynch International unit paid no corporation because of “relief obtained via the utilisation of historical losses brought forward”, largely from during the global financial crisis.
Accounts for other banks’ UK subsidiaries also show that they benefited from using losses built up during the crisis to offset current tax bills.
Last year the government changed tax rules so that such losses may only offset half a bank’s income in any one year, partly explaining the increase in the banks’ effective tax rate compared with 2014.
Other banks including JPMorgan said in the filings that since tax payments often partly cover the previous year’s earnings, the rate paid in a given year may not reflect the amount eventually paid in respect of that year’s profits.
Across the UK banking sector, corporation tax payments are half what they were before the financial crisis, according to the BBA’s own tax survey, published last month.
The drop is not confined to banks, and is echoed across other businesses. The ‘100 Group’ which represents about 100 of the UK’s largest companies said corporation tax payments by its members had fallen over the past decade.
Tax campaigners say some companies also use complex inter-company transactions to ensure profits are actually reported in lower tax jurisdictions to minimise bills.
Banks’ filings do sometimes show disproportionate profitability in such jurisdictions. London-based Goldman Sachs Group UK reported a $194 million profit in the Cayman Islands, which has no corporate income tax, despite employing no staff there.
That’s despite the UK arm employing more people than Ireland, and more senior staff – average wages at London-based Citigroup Global Markets Ltd were $288,000 per head last year compared with $48,000 at Dublin-based Citigroup Europe.