There is a story doing the rounds today on the fact that UK banks are not paying tax.
There is much more on the background to this story in a report I wrote for the EU's Green MEPs in July, available here.
These banks are engaged in systematic profit shifting.
Country-by-country reporting has provided the evidence.
Now it is time for the roll out of full country-by-country reporting. How much more evidence do we need?
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Perhaps they are – but in the article I read (I can’t access Guardian) the journalist lost credibility when he implied that tax should be somehow related to turnover, and that carrying forward corporation tax losses wasn’t entirely reasonable.
Once again when it comes to the press the serious matter of profit shifting and HMRC seemingly failing to implement the transfer pricing rules is lost amid woeful reporting and understanding when it comes to principles of tax and accounting.
Actually there are questions about tax and turnover: it does indicate where substance is
And there are good questions about why losses are allowed to be carried forward – some of which are being addressed but only now
So the points you make are not as justified as you think
And as I understand it, they are allowed to off-set their fines against tax liabilities? So in effect the tax-payer contributes to their fines
No doubt something the esteemed Ms Knight will look into … not
And any thoughts on Stephanie Flanders stout defence of her new employer (JP Morgan)?
I’m too polite to comment
Surely many of the UK banks will still have large carried forward corporation tax losses from 2007-2008. Nearer the time, I heard estimates that some would not have to pay corporation tax for decades, and that was part of the original reason for introducing a bank levy based on balance sheet assets rather than annual profits. If a tax is charged on taxable profits each year, and there are no taxable profits in a particular year (after deductions, allowances and reliefs) then no tax will not be payable.
I’m sure the banks have questions to answer on transfer pricing and substance – I recall the Barclays staff in Luxembourg are particularly profitable for some reason – but your report also seems to indicate shifting of profits from places such as Switzerland and the Netherlands (not usually noted as high tax jurisdictions) and “unallocated” (?) to places such as France, Australia, Japan and the US (not usually noted as low tax jurisdictions). Why should that be?
I explained Switzerland
The Netherlands is explained by being the headquarters of some spectacularly unsuccessful banks
And I have noted other outliers
You are ignoring the trend. Why?
Still got your Christmas spirit then…
I was thinking of a more technical response. I see she is claiming £4bn paid by JPM over the last 5 years.
Most of which was bank levy
She was being disingenuous
Unfortunately, this provides convincing evidence that our esteemed Chancellor of the Exchequer should *not* roll out country-by-country reporting; and if this is led by the EU, the banks will throw their money behind the Brexit campaign.
The rest of us will, quite rightly, see this as convincing evidence that we *should* roll out country-by-country reporting, and act upon the findings with diligence, discipline and determination.
Pre-2008, I thought the general trend for global trading transfer pricing in banks was to allocate the profits to where the capital was, rather than the people (the locations of the people got a smaller allocation of the profits). The downside of this sort of profit split was that when there were losses (i.e. in 2008), they ended up allocated to where the capital was and, in many cases, that was the UK so I would have thought some of these banks still have large tax losses brought forward to offset current profits.
I have losses from the crash that I would have liked to offset against tax. The 40 years savings that should have been in ‘safer’ property investments (so described,verbally, by a bank employee) was invested in derivatives. The bankers got bonuses, I got the explanation “investments can go down as well as up”. I got ‘you didn’t pay for advice you paid for information’. I now get to contribute more taxes than many international corporations. The banks get corporate welfare benefits and the choice of whether to pay tax at all. Funny old world, innit?
Neatly argued
Richard
It really does you no credit when you appear to condone posts like the one above by refusing to point out the numerous flaws in what has been said, even if you agree with the underlying sentiments.
When I come to approve comments I cannot see where in the thread they are so I quite literally do not know what you are talking about
You probably have “capital losses” that you can use, but unfortunately you won’t be allowed to apply them against “income taxes”.
If “capital gains” were taxed in the same way as “income” a reasonable person would allow you to offset those “capital losses” against “income taxes”, but unfortunately that isn’t the case and never has been as far as I can tell.
They could not avoid the Bank Levy as this was based on their balance sheet and lobbied hard to get this removed. It is clear that they will now do their best to avoid the new Bank Surcharge.
As private banks clearly have no moral or social responsibility it is a good time to create a strong and viable cooperative/mutual alternative financial system for people and businesses who are fed up with being treated like pawns in some giant game of chess that will always leave the private bankers as winners while everyone else is expected to accept they will always be losers.
Time to move on from such a corrupt system whose credibility is rapidly running out!
I was referring to the comments by Bill Lawrence – I assume that you do realise how badly flawed his understanding is, however well-meaning?
He is entitled to his view
And it was reasonably argued
You really think that post is ‘reasonably argued’???
It’s full of nonsense and rhetoric!
A point was made
Have you made one?
Call me old fashioned but as I understand it there has existed a custom since at least the time of the enlightenment (which kicked off some time back) that conclusions have to be preceeded by evidence and argument. This has been noticeable by its absence on your posts about Bill Lawrence’s comment.
Stating something is so because you say it is so with no supporting argument as to the why’s and wherefores is not only worthless it is an abuse of rational discourse.
Why James, is what you have interpreted what Bill has said fundamentally flawed? If you wish anyone to take you seriously you need to back up your conclusions with rational argument and evidence. So far all you have done is mouth off like an obnoxious drunk.
For what it’s worth my guess is you have seriously misinterpreted Bills point and you cannot see the wood for the trees. Even though it’s Christmas that’s the only hint you are going to get because quite frankly it is getting somewhat tiresome having to Janet and John things for people so bone idle they cannot even be arsed to present an argument to substantiate their self opinionated outpourings dressed up as meaningful conclusions.
James looks like a technician
What Bill said is not technically correct as the law stands
So he thinks it is wrong
But I liked Bill’s argument
And it was an argument
I don’t have to agree with an argument to publish it
What annoys me are those who can’t argue and instead proclaim
That explains a lot.
The common observation about Technicians which existed in the Signals forty years back was that about T1 knew how to hit it; a T2 knew where to hit it; and a T3 knew why you hit it.
The point I was making is that for a so-called serious blog from an ‘economist’ you appear to condone / support an awful lot of nonsense as long as it’s consistent with your personal views, which doesn’t help neutral observers take much of what you say seriously.
I doubt you’ll mind that, as long as your psychophants have something they can cheer about. However it seems a wasted opportunity to me if you want the blog to be viewed more widely and be seen as credible by experts.
Dear James
Over many years many people of right wing intent have told me if only I agreed with them then I would be so much more successful
They never defined success
I think, by implication, it was as they viewed it
I have ignored that advice, persistently, and for good reason
First, I did not seek ‘that’ success
Second, I happen to think that from what is now thought unconventional new wisdom can arise to replace that that which is failing us
And thirdly, I seemed to have had some success of my own despite the advice
So, in a spirit of seasonal good will I thank you for your advice
And will now ignore it
Best regards
Richard
As usual Richard feel free to post or not, modify or not. If this missive contributes to the noise and not the debate then discard it.
Oh dear, sorry Richard, my little joke caused some upset. For the record I am aware that my comments showed a flagrant disregard for the regulations and how they actually operate. That was the point! The regulations, protocols and standard procedures are a sick joke and they operate to the sole advantage of large corporations (not just banks) they do not match legitimate expectations of fairness, morality and justice. They do not match how the majority are treated or contribute to the general good.
As long ago as 1998 serious practical warnings about the regulation of capitalism were being issued. John Gray, Emeritus Professor at the LSE, published False Dawn in that year. It predicted with a surprising degree of accuracy that the crash was inevitable. One of the points I sought to make was that the Banks could not claim they were unaware of the situation. They chose to ignore any warnings. They chose to mislead customers into risky investments, and fraudulent products and then hid behind the weasel words of lawyers to avoid the consequences. That is not a course open to PAYE taxpayers.
Another point I sought to show was the failure of Government to regulate to prevent or at least protect savers from sharp practise. This was followed by two administrations who chose to ignore that inept, greedy, dishonest behaviour of banks. They failed to hold the corporations to the same standards and values that they apply to me. Indeed they raided my pocket through cuts and tax to fund the banks’ continued existence. Compare the one banker brought to justice for billions in losses with the 897,000 on benefit sanctions for losses of a few million quid and of which 49.7% are overturned on appeal months later.
One only has to look at the treatment of the tax avoidance bill you and Michael Meecher sought to introduce to see where the executive believed their interests lay. Would Baron Mandelson still have got his knees under Lazard’s boardroom table if he and his blue labour mates had responded to the interests of the majority? Would the 2012 Finance Act have looked substantially different if the BBA had not lobbied so well (both overtly and covertly)?
I no longer attend any meeting with my bank without slipping a voice recorder into my top pocket. Trust has long gone. Has there been any serious attempt to correct the excesses? The 2012 Finance Act was supposed to go some way toward that goal but only served to ensure that the 2700 plus people in the London finance sector receiving more than a million pounds a year felt no ill effects. Lord Green went from leading HSBC throughout the relevant period to cabinet minister. He had managed to offshore thousands of British jobs and presided over money laundering for the Sinaloa Drug Cartel. Am I really being expected to accept that the laws and regulations he helped introduce governing the conduct of banks had not been manipulated by industry lobbyists?
PPI, Libor, Mortgage Backed Derivatives, Gold and Precious Metal exchange, Rate Swaps and Foreign Exchange Manipulation are indicative of serious persistent wrongdoing. That implies that when it comes to tax matters, evasion for instance, we should perhaps not extend the courtesy of assuming honest or ethical behaviour by the banks or any other transnational corporation. I am not inclined to accept the proffered accounts at face value when the very companies offering ‘tax optimisation products’ are the ones validating those accounts.
Does the financial sector now stay within the rules? For the most part they probably do but then their co-opted consultants within the Treasury did rewrite the rules. Is the same opportunity available to Joe/Jill Public? No. When it comes to him/her benefits will be sanctioned first and the evidence examined (much) later. PAYE will deduct the demanded amount, if there’s a mistake it will be corrected later (maybe).
So there you have it. My complaint was not intended to offer an exposition of how the corporate tax rules regulations and protocols apply in law that is beyond my capacity. I was seeking to highlight the them and us nature of the rules. My complaint was that I perceive the corporate tax system to be anti democratic, biased, dishonest, unjust and unfair. I could have selected texts from many sources to underpin my statements but they would probably be dismissed as leftist propaganda. Instead I suggest instead a reading of a Libertarian tract – Anarchy, State & Utopia, by Robert Nozick – Chapter 4, p78 on the moral principles applying to risky ventures versus third party compensation and justice. Under a regime based on that reading I suggest the banks should be paying the cost of the crash and not the ordinary citizen. And it’s not often I find myself agreeing with Nozick.
I call that a contribution to debate
Oh yes, those same credible economic experts who consistently fail to predict asset bubbles as they see no reason to understand money creation and human greed!
Group think is far too prevalent across the business, political and economic community of so called experts. The more heterodox alternatives the better in my view!
Christmas day.
A fine time to peruse the site and think about the above comments
Hmmm.
Upton Sinclair anybody ?
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
Or maybe the more prescient:
“One of the necessary accompaniments of capitalism in a democracy is political corruption.”
Then again, bearing in mind the current state of the “market”:
“Wall Street had been doing business with pieces of paper; and now someone asked for a dollar, and it was discovered that the dollar had been mislaid.”
(substitute “Wall Street” with “The City”)
(or maybe consider that much of the cities dealing are in blood money, which is then liberally doled-out to our almost totally corrupt, morally as well as criminally, political class.)
Bill – I thought your original piece was spot on, though clearly the irony was lost on some. it’s a sentiment I’ve often expressed
A serious point, which the response illustrated, is that most of the City’s denizens – bankers, lawyers, accountants and come to that regulators – always hide behind technical arguments, and choose to ignore or deny any ethical responsibility for their actions and the consequences. Actions that they claim are ‘technically’ legitimate. They have come to exist in a complete moral vacuum
Stephen Green, ex-HSBC. Is a perfect example. A lay preacher no less, who writes a book on ethical behaviour whilst leading an organisation that has repeatedly behaved dishonestly and unethically, though their lawyers and accountants argue otherwise. Clearly a man with no self awareness whatsoever. Hypocrisy of the highest, or perhaps that should be lowest order
In my experience consulting to many organisations, private and public and mostly in the finance sector, I have observed that those organisations that have deep rooted ethical standards, need little regulation to guide them. They do not want to abuse their customers or the communities in which they operate and where their people misbehave, they do not need to be told to address the problem. Nobody is perfect and in large organisations somebody somewhere will misbehave. The question is how they respond to that misbehaviour – do they need to be told to fix it, and defend and deny with armies of lawyers? Like a BP or City institutions? Or do they get on themselves, find the real cause and fix it without having to be dragged kicking and struggling
In too many organisations and especially those in the City, rules and regulations really are seen as something just to be gamed. And all too often they are the ones setting the rules. The Letter is everything and the Spirit is long gone. Indeed that spirit is openly despised, explicitly by the fundamentalists of the new-liberal right
So Richard and others are doing great work on complex technical issues such as tax and banking, let’s not forget that without the Spirit element, all the Letters in the world will have lonely modest impact. I’m not sure where leadership is coming from on that front
Excellent point that echoes some of my thinking in The Courageous State