The Chancellor of the Exchequer today announced plans as part of the Budget for a bank levy based on balance sheet liabilities to be introduced from 1 January 2011. It appears that the amount raised will just be used for general purposes rather than accumulating within any designated fund.
This levy will affect all UK banks and banking groups as well as non-UK banking groups with UK operations, although only in both cases if they have relevant liabilities of £20 billion or more. Tier 1 capital, insured retail deposits, repos secured on sovereign debt and policyholder liabilities of retail insurance businesses within banking groups will not be included as liabilities for this purpose. It is also proposed that only net derivative liabilities will be included.
Unlike bank payroll tax, the proposed bank levy is to be a permanent levy although it will also not be corporation tax deductible. The rate is proposed to be set at 0.04% in 2011 rising to 0.07% in later years. There will be a reduced rate for longer-maturity wholesale funding liabilities of 0.02% and 0.035% respectively. Staff remuneration and bank profitability play no part in calculating the levy (although there are separate Government initiatives looking at taxes linked to these), but the final scope of the levy this will no doubt be subject to international G20 developments where taxing financial transactions and other activities are still being discussed. The UK Government will not legislate in a vacuum although a Government press release today said that the French and German governments are also pursuing a balance sheet-based levy.
There will be consultation in advance of the levy over the summer. It is hoped that the levy's scope will be clear from the outset unlike the bank payroll tax where there had to be a significant battle to make the tax appropriately targeted. However, there will be key things to consider like when the measurement date for liabilities is to be and whether it is only amounts above £20 billion that will be taxed or, if a bank is caught, all relevant liabilities will be subject to the levy. It is also not clear whether the liabilities of a an overseas branch of a bank will be subject to double taxation, ie taxed in two countries' banking tax systems, or whether there would somehow be the ability to credit one payment against the other liability. Finally, close scrutiny will need to be paid as to whether just banking liabilities are caught or liabilities relating to non-banking activities also are included.
For a link to the Treasury announcement on the bank levy, please click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
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The original publication date for this article was 22/06/2010.
