The Government will work with international partners to explore the costs and benefits of a Financial Activities Tax on profits and remuneration, the Treasury said as it published draft legislation implementing the Bank Levy announced in the June 2010 Budget. The TUC claimed that the proposed levy was ‘a pathetically small amount’.
The Bank Levy, to be based on the total chargeable equity and liabilities as reported in banks' balance sheets, will take effect from 1 January 2011 and will be permanent.
It is intended to ‘encourage banks to move to less risky funding profiles’, and the Government expects it to generate £2.5 billion of annual revenues by 2012/13.
Final legislation will be published before the end of the year ‘as part of consolidated draft clauses planned for Finance Bill 2011, in preparation for 1 January 2011’.
The draft legislation and explanatory notes, together with the Government’s response to the recent consultation, are available on the Treasury website.
BBA response The British Bankers’ Association said: ‘The banks are committed to playing their part in restoring the UK economy – and that includes helping to meet the greater demands on the Exchequer. The banking industry paid more than £26bn in taxes last year and the bank levy will increase this figure. We will work with the Treasury to ensure the final levy also meets the aim of maintaining the UK's position as the world's financial centre while generating additional tax revenues.
‘This bank levy applies not only to UK banks but also to the more than 200 overseas banks operating in this country. Changes to the detail have been made during the consultation period but inevitably the levy will have a significant impact.
‘Questions are being raised about the UK proposing to apply tax to a global balance sheet. The Treasury’s statement is largely silent on how this levy would interact with taxation in other countries. Until this is clearer, some banks could be taxed multiple times by multiple jurisdictions on the same activities. There is also no international consensus on how banking activities should be taxed: the G20 members still hold very different views.’
The draft legislation ‘includes powers to give effect to arrangements to alleviate double levy charges or to introduce regulations providing for double levy relief,’ according to HMRC’s draft guidance. The Financial Times reported that the Treasury is working with other governments to resolve the double taxation issue but ‘some lawyers warned that it might be hard-pushed to reach an agreement’.
TUC response TUC General Secretary Brendan Barber said the levy was ‘a pathetically small amount’ to demand from the banks. ‘Ministers have come up with the smallest number that they think they can get away with, even though the banks are carrying forward £19 billion of tax losses to offset against future tax bills – losses that have been bailed out by the taxpayer,’ he said.
Rates The final rates have not yet been determined but the first £20 billion of chargeable liabilities will be exempt. The Treasury’s July 2010 consultation paper said: ‘It is proposed that the Levy will be set at 0.07 per cent which is expected to raise around £2½ billion annually. However, there will be a lower rate of 0.04 per cent for 2011. There will also be a reduced rate for longer-maturity funding (i.e. greater than one year remaining to maturity at the operative balance sheet date) to be set at 0.02 rising to 0.035 per cent; half the main rate.’
The Government will work with international partners to explore the costs and benefits of a Financial Activities Tax on profits and remuneration, the Treasury said as it published draft legislation implementing the Bank Levy announced in the June 2010 Budget. The TUC claimed that the proposed levy was ‘a pathetically small amount’.
The Bank Levy, to be based on the total chargeable equity and liabilities as reported in banks' balance sheets, will take effect from 1 January 2011 and will be permanent.
It is intended to ‘encourage banks to move to less risky funding profiles’, and the Government expects it to generate £2.5 billion of annual revenues by 2012/13.
Final legislation will be published before the end of the year ‘as part of consolidated draft clauses planned for Finance Bill 2011, in preparation for 1 January 2011’.
The draft legislation and explanatory notes, together with the Government’s response to the recent consultation, are available on the Treasury website.
BBA response The British Bankers’ Association said: ‘The banks are committed to playing their part in restoring the UK economy – and that includes helping to meet the greater demands on the Exchequer. The banking industry paid more than £26bn in taxes last year and the bank levy will increase this figure. We will work with the Treasury to ensure the final levy also meets the aim of maintaining the UK's position as the world's financial centre while generating additional tax revenues.
‘This bank levy applies not only to UK banks but also to the more than 200 overseas banks operating in this country. Changes to the detail have been made during the consultation period but inevitably the levy will have a significant impact.
‘Questions are being raised about the UK proposing to apply tax to a global balance sheet. The Treasury’s statement is largely silent on how this levy would interact with taxation in other countries. Until this is clearer, some banks could be taxed multiple times by multiple jurisdictions on the same activities. There is also no international consensus on how banking activities should be taxed: the G20 members still hold very different views.’
The draft legislation ‘includes powers to give effect to arrangements to alleviate double levy charges or to introduce regulations providing for double levy relief,’ according to HMRC’s draft guidance. The Financial Times reported that the Treasury is working with other governments to resolve the double taxation issue but ‘some lawyers warned that it might be hard-pushed to reach an agreement’.
TUC response TUC General Secretary Brendan Barber said the levy was ‘a pathetically small amount’ to demand from the banks. ‘Ministers have come up with the smallest number that they think they can get away with, even though the banks are carrying forward £19 billion of tax losses to offset against future tax bills – losses that have been bailed out by the taxpayer,’ he said.
Rates The final rates have not yet been determined but the first £20 billion of chargeable liabilities will be exempt. The Treasury’s July 2010 consultation paper said: ‘It is proposed that the Levy will be set at 0.07 per cent which is expected to raise around £2½ billion annually. However, there will be a lower rate of 0.04 per cent for 2011. There will also be a reduced rate for longer-maturity funding (i.e. greater than one year remaining to maturity at the operative balance sheet date) to be set at 0.02 rising to 0.035 per cent; half the main rate.’
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