How foreign banks got around paying U.K. corporate income tax — without breaking the law.
Credit Suisse and Citigroup paid nil in 2014
LONDON • Two more investment banks have reported paying zero tax in Britain in 2014, prompting the opposition Labour party to urge the government to reverse a tax change it made for banks last year.
Citigroup Inc. and Credit Suisse AG disclosed in the past fortnight that their main U.K. subsidiaries paid no corporate income tax in 2014, the most recent year for which figures are available. This means seven of the 10 biggest foreign investment and commercial banks operating in Europe’s main investment banking centre have said their main British arms paid no tax in that year.
In total the 10 banking groups generated over US$40 billion in fees in Britain in 2014, reported US$6.5 billion in profit and employed almost 50,000 people. But they contributed just US$205 million in corporate income tax.
“These are damning findings that make a real mockery of the government’s approach to taxation of the financial sector,” said John McDonnell MP, the opposition Labour party’s shadow finance minister.
The other f i ve banks are JP-Morgan Chase & Co., Nomura Holdings Inc, Deutsche Bank AG, Bank of America Merrill Lynch and Morgan Stanley. All declined to comment. There is no evidence that they broke any tax rules.
Most companies engage in tax planning to manage their bills, and banking lobby groups say corporate income tax is just one of many taxes the investment banks pay — Britain benefits richly from income taxes on bankers’ bonuses.
“The government believes it is crucial that the banks make a fair contribution to restoring stability to the public finances and has taken important steps to ensure they do this,” a spokesman for the finance ministry said. The tax authority said it ensures all businesses pay tax due under British law, but declined to comment on the banks.
In July, following pressure from banks that threatened to move operations from London, Finance Minister George Osborne said he would halve a levy banks must pay as a percentage of their assets, and he would restrict the base on which it is calculated.
At the same time he increased the tax rate banks must pay on corporate in- come, to 8 percentage points above the standard rate.
Tax experts say corporation tax is easier to avoid than the bank levy.
McDonnell said the figures showed Osborne was already pursuing a “soft touch” approach. “This report should be setting off alarm bells at the Treasury and he should be reversing his decision on the bank levy immediately,” he said.
Tax avoidance has become a hot political topic in Britain after revelations in recent years of profit shifting by big groups including Apple Inc. and Amazon. com Inc. Last year, banks were required to disclose how much tax they have paid on profits generated country-by-country. On Dec. 31, Citigroup said that its two main U.K. subsidiaries had a combined profit of US$ 308 million, but losses from the past reduced the tax it actually had to pay to zero.
Credit Suisse did not have a tax bill because it reported a loss in Britain for 2014. The bank reports most of its European profits in Switzerland, where effective tax rates can be much lower than in Britain.
Of the 10 biggest foreign investment banks measured by fee income, only three paid corporate income tax in 2014. Goldman Sachs Group Inc paid US$27 million in tax on US$2 billion of profit generated by its London arm, while Switzerland’s UBS Group AG paid US$4 million on US$140 million in U.K. profits. Both declined to comment.
The biggest taxpayer of the 10 was Paris- based BNP Paribas, which paid US$ 174 million on US$ 954 million profit generated by its U. K. unit, which focuses on investment and commercial banking.
It is not possible to compare the contributions of British banks including Barclays and HSBC, because even though they have large investment banking businesses, their country-by-country reports also include taxes paid on retail operations. Barclays declined to comment and noone from HSBC was available.