Tag Archives: banking

Foreign banks in Britain pay fraction of tax rate

Pedestrian pass the offices of Goldman Sachs in London April 20, 2010. REUTERS/Toby Melville

Pedestrian pass the offices of Goldman Sachs in London April 20, 2010. REUTERS/Toby Melville

By Tom Bergin
December, 2016

LONDON (Reuters) – Some of the biggest foreign investment and commercial banks operating in Britain paid an average tax rate of just 6 percent on the billions of dollars of profits they made in the country last year, a Reuters analysis of regulatory filings shows.

That is less than a third of Britain’s corporate rate of 20 percent. 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 U.S. banks, reported a profit – a combined $7.5 billion – and paid corporation tax, or corporate income 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.

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, said the Government had taken steps to ensure banks paid the correct amount of tax.

“Many complex factors contribute to the effective rate of tax paid by corporate businesses,” a spokesman added in a emailed statement.

The finance ministry was not available to comment.

The 6 percent rate is still higher than the average rate of 1 percent 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.

‘ALL-TIME HIGH’

A Citigroup office is seen at Canary Wharf  in London, Britain May 19, 2015.  REUTERS/Suzanne Plunkett

A Citigroup office is seen at Canary Wharf in London, Britain May 19, 2015. REUTERS/Suzanne Plunkett

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.”

The data comes as banks in Britain push back against a government decision last year to increase their corporate tax rate to 28 percent this year – a move that was offset by a cut in the levy on their assets.

The BBA criticised the change saying, the government risked making Britain a “less attractive place for banks”.

This week, it said the low corporation tax payments would likely increase in coming years. In any case, it said combining the bank levy, value added tax, payroll taxes and income taxes paid by staff foreign banks contributed 16.8 billion pounds to the UK Exchequer in 2015. “Tax contributions by the banking sector are at an all-time high,” a BBA spokeswoman said.

The levy – introduced in 2011 to help discourage risky borrowing and pay for the crisis-era banking bailouts – raised 3.4 billion pounds in 2015-16, compared with corporation tax payments by the sector of 3.2 billion pounds, the BBA said.

Only one of the foreign banks published data on their bank levy payments. Merrill Lynch International said it paid a levy of $19.2 million last year, down from $47.5 million in 2014.

LAGS AND LOSSES

A man walks into the JP Morgan headquarters at Canary Wharf in London May 11, 2012.  REUTERS/Dylan Martinez/File Photo

A man walks into the JP Morgan headquarters at Canary Wharf in London May 11, 2012. REUTERS/Dylan Martinez/File Photo

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 around 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 Ltd reported a $194 million profit in the Cayman Islands, which has no corporate income tax, despite employing no staff there.

Citigroup reported twice as much profit at Citigroup Europe Plc, its main subsidiary in Ireland, than at its main UK subsidiary. 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 Plc.

Ireland’s tax rate is 12.5 percent.

Goldman and Citigroup declined to comment.

Copyright Reuters 2016

($1 = 0.8035 pounds)

(Editing by Pravin Char)

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EU makes last ditch effort to save Greek bailout

A protester holds a banner in Greek colors in front of the parliament building during an anti-austerity rally in Athens, Greece, June 29, 2015. REUTERS/Yannis Behrakis

A protester holds a banner in Greek colors in front of the parliament building during an anti-austerity rally in Athens, Greece, June 29, 2015. REUTERS/Yannis Behrakis

By Renee Maltezou and Lefteris Papadimas
June 30, 2015

ATHENS (Reuters) – EU authorities made a last-minute offer to salvage a bailout deal that could keep Greece in the euro as the clock ticked down on Tuesday, with Germany warning that time had run out to extend vital credit lines to Athens.

With billions of euros in locked-up bailout funds due to expire at midnight, the European Commission urged Greece to accept the proposed deal, while holding out hopes that some tweaks could still be possible.

If no agreement is reached, Greece will default on a loan to the IMF, setting it on a path out of the euro with unforeseeable consequences for the European Union’s grand currency project and the global economy.

Greek officials, who insist that a referendum on the bailout package on Sunday is part of the negotiating process, said they wanted a deal though there was no firm offer or move towards accepting European Commission President Jean-Claude Juncker’s proposals.

“We want a viable solution. If we get a credible proposal that leaves even a sniff of a viable solution, we’ll be the first to take it,” a senior finance official told reporters.

However prospects of a breakthrough were dampened by a cool response from German Chancellor Angela Merkel.

“This evening at exactly midnight central European time the programme expires. And I am not aware of any real indications of anything else,” Merkel said at a news conference with Kosovo’s prime minister.

“All I know is that the last offer from the Commission that I’m aware of is from Friday of last week.”

EU and Greek government sources said Juncker, who spoke to Prime Minister Alexis Tsipras late on Monday, had offered to convene an emergency meeting of euro zone finance ministers on Tuesday to approve an aid payment to prevent Athens defaulting, if Tsipras sent a written acceptance of the terms.

He also dangled the prospect of a negotiation on debt rescheduling later this year if Athens said “yes”.

By early afternoon on Tuesday no firm response had been received from Greece, Commission spokesman Margaritis Schinas told reporters.

“As we speak, this move has not yet been received, registered, and time is now narrowing,” Schinas said.

The growing possibility that Athens could be forced out of the single currency brought into sharp focus the chaos that could be unleashed in Greece and the risks to the stability of the euro.

“What would happen if Greece came out of the euro? There would be a negative message that euro membership is reversible,” said Spanish Prime Minister Mariano Rajoy, who a week ago declared that he did not fear contagion from Greece.

“People may think that if one country can leave the euro, others could do so in the future. I think that is the most serious problem that could arise.”

 

Pensioners line-up outside a branch of the National Bank of Greece hoping to get their pensions, in Athens, Greece June 29, 2015. REUTERS/Yannis Behrakis

Pensioners line-up outside a branch of the National Bank of Greece hoping to get their pensions, in Athens, Greece June 29, 2015. REUTERS/Yannis Behrakis

DEFIANCE

The last-ditch bid from Brussels came as uncertainty built ahead of Sunday’s referendum, with a string of European leaders warning that it would effectively be a choice between remaining in the euro or reverting to the drachma.

Opinion polls show Greeks in favour of holding on to the euro but a rally of tens of thousands of anti-austerity protestors in Athens on Monday highlighted the defiance many in Greece feel about being pushed into a corner by the lenders.

Further rallies are expected in coming days, with a demonstration in favour of staying in the euro planned in central Athens on Tuesday.

Tsipras broke off negotiations with the Commission, the IMF and the European Central Bank and announced the referendum on the bailout terms early on Saturday, giving voters just one week to debate the fundamental issues at stake.

Under Juncker’s offer, Tsipras had to send a written acceptance by Tuesday of the terms published by the EU executive on Sunday and agree to campaign in favour of the bailout in the planned July 5 referendum.

European Union leaders hammered home the message that the real choice facing Greeks is whether to stay in the euro zone or return to the drachma, even though the EU has no legal way of forcing a member state to leave the single currency.

Italian Prime Minister Matteo Renzi warned against turning the referendum into a personality contest between Tsipras and Juncker or Merkel.

“This is not a referendum on European leaders. This is a run-off vote: euro or drachma,” Renzi told the Italian business daily Il Sole 24 Ore.

“The Greeks do not have to say whether they love their prime minister or the head of the European Commission more. They have to say whether they want to stay in the single currency.”    

 

Giorgos, a 77-year-old pensioner from Athens, sits outside a branch of the National Bank of Greece as he waits along with dozens of other pensioners, hoping to get their pensions in Athens, Greece June 29, 2015. REUTERS/Yannis Behrakis

Giorgos, a 77-year-old pensioner from Athens, sits outside a branch of the National Bank of Greece as he waits along with dozens of other pensioners, hoping to get their pensions in Athens, Greece June 29, 2015. REUTERS/Yannis Behrakis

DEFAULT

Greece, which has received nearly 240 billion euros in two bailouts from the European Union and International Monetary Fund since 2010, is set to miss a 1.6 billion euro debt repayment to the IMF which falls due on Tuesday.

If that happens, IMF Managing Director Christine Lagarde will immediately report to the global lender’s board at close of business, Washington time, that Greece is “in arrears” – the official euphemism for default.

It will be the first time in the history of the IMF that an advanced economy has defaulted on a loan from the world’s financial backstop, putting Athens, which has seen its economy contract by more than 25 percent since 2009, in the same bracket as Zimbabwe, Sudan and Cuba.

Already the imposition of capital controls to prevent the crippled banking system from collapsing have given Greeks a bitter foretaste of the economic plunge that could follow exit from the euro.

Withdrawal limits of 60 euros a day have been fixed for cash machines and there have been long queues at petrol stations and in supermarkets as worried shoppers have stocked up on essentials like pasta and rice.

There were no immediate signs of serious shortages but if the banks remain closed, cash flow problems which have already been reported by some firms, could worsen.

“So far there are no problems with suppliers, but if the banks are still closed next week there will be a bit of a problem if they demand purely cash payments,” said Charisis Golas, owner of a small meat and dairy shop in Athens.

Copyright Reuters 2015

(Additional reporting by Silvia Aloisi in Milan, Mark John in Paris and George Georgiopoulos and Lefteris Karagiannipoulos in Athens; Writing by Paul Taylor and James Mackenzie; editing by Anna Willard)

 Further reading on F&O:

The Greek tragedy: a drama with many villains and no heroes, Jonathan Manthorpe column (paywall)

Nine things to know about Greece’s IMF debt default, by André BroomeUniversity of Warwick

The Greek crisis in photos:

 

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