A report from the Cambridge Judge Business School reveals a ‘dramatic’ fall in UK corporation tax paid by British banks despite strong growth. The study found that in current prices, total UK CT receipts from the banking sector declined from £7bn in 2005/06 to £1.3bn in 2011/12 and £2.3bn in 2012/13, or a fall from about 20% of total UK corporation tax receipts in 2005/06 to just 4% by 2011/12. It also found that operating profit of those banks actually increased slightly between 2005–07 and 2010–12, from £139bn to £143bn.
The study looked closely at four of the big banks (excluding Barclays and RBS because they had ‘in the most recent years, not been clearly disclosing the UK component of their taxation total’) and discovered that while global tax for those four banks increased slightly between 2005/07 and 2010/12, from £12.69bn to £12.85bn, the amount paid to the UK exchequer declined from £3.8bn to £1.4bn, or from 30% of global tax to just 11%.
The study looked at whether this sharp decline reflects larger profits originating outside the UK, more generous UK tax exemptions, or a reclassification of some UK-originating profits to other jurisdictions and concluded that ‘incomplete disclosures’ resulting from current reporting requirements for banks severely hampers the forecasting ability of both the UK’s Office of Budget Responsibility (OBR) and the banks’ shareholders. These ‘often patchy or opaque’ incomplete disclosures ‘must constrain the OBR’s ability to forecast the tax revenues which are needed to repay the extraordinary government borrowing used to bail out the banking system,’ the study concludes and ‘hinder the shareholders of the banks in forming their expectations of future earnings – to the detriment of capital market efficiency.’
A report from the Cambridge Judge Business School reveals a ‘dramatic’ fall in UK corporation tax paid by British banks despite strong growth. The study found that in current prices, total UK CT receipts from the banking sector declined from £7bn in 2005/06 to £1.3bn in 2011/12 and £2.3bn in 2012/13, or a fall from about 20% of total UK corporation tax receipts in 2005/06 to just 4% by 2011/12. It also found that operating profit of those banks actually increased slightly between 2005–07 and 2010–12, from £139bn to £143bn.
The study looked closely at four of the big banks (excluding Barclays and RBS because they had ‘in the most recent years, not been clearly disclosing the UK component of their taxation total’) and discovered that while global tax for those four banks increased slightly between 2005/07 and 2010/12, from £12.69bn to £12.85bn, the amount paid to the UK exchequer declined from £3.8bn to £1.4bn, or from 30% of global tax to just 11%.
The study looked at whether this sharp decline reflects larger profits originating outside the UK, more generous UK tax exemptions, or a reclassification of some UK-originating profits to other jurisdictions and concluded that ‘incomplete disclosures’ resulting from current reporting requirements for banks severely hampers the forecasting ability of both the UK’s Office of Budget Responsibility (OBR) and the banks’ shareholders. These ‘often patchy or opaque’ incomplete disclosures ‘must constrain the OBR’s ability to forecast the tax revenues which are needed to repay the extraordinary government borrowing used to bail out the banking system,’ the study concludes and ‘hinder the shareholders of the banks in forming their expectations of future earnings – to the detriment of capital market efficiency.’
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