Draft Bank Levy (Double Taxation Relief) (SIngle Resolution Fund Levy) Regulations 2016

Jane Ellison Excerpts

Thursday 8th December 2016 General Committees

[The Financial Secretary to the Treasury (Jane Ellison)]

I beg to move,

That the Committee has considered the draft Bank Levy (Double Taxation Relief) (Single Resolution Fund Levy) Regulations 2016.

The regulations are made under powers available in schedule 19 to the Finance Act 2011 to provide double taxation relief in respect of contributions to the UK bank levy. In particular, the regulations allow double taxation relief when there is a charge under both the UK levy and a new eurozone levy called the single resolution fund.

Since 1 January 2015, all EU member states have been bound by the bank recovery and resolution directive, which requires that member states have a resolution financing mechanism and raise a certain amount of funding on an ex-ante basis from banks authorised in their territory. In the eurozone, banks pay a contribution to the single resolution fund; the UK is satisfying its obligations under the bank recovery and resolution directive by raising contributions through our existing bank levy. In some circumstances, payments made to the single resolution fund overlap with the UK bank levy, giving rise to instances of double taxation.

For other bank levies, such as those of France, Germany and the Netherlands, we have introduced provisions that allow for double taxation relief, but currently no mechanism is in place to give relief for payments made into the single resolution fund. In line with the Government’s general policy of avoiding double taxation, it was announced at summer Budget 2015 that relief would be provided against the UK bank levy for payments made to the single resolution fund from 1 January 2015.

I shall explain how the double taxation arises. The UK bank levy is levied on a group basis, whereas the single resolution fund levy is levied on an entity basis, which means that there could be double taxation if there is either an EU subsidiary of a UK-resident entity or a UK permanent establishment of an EU entity. As both bank levies are charged on balance-sheet liability, the regulations will give relief if there is a charge under both the bank levy and the single resolution fund levy in respect of liabilities on the same balance sheet. The regulations set out clear rules for calculating the amount of double tax relief due in the different circumstances in which it could arise. The rules ensure that the regulations provide a clear, consistent and fair outcome for all affected parties.

The Government are continuing their policy of avoiding the double imposition of taxation. Not to do so would risk unfairly burdening certain banks and damaging UK financial sector competitiveness.

[Nigel Mills (Amber Valley) (Con)]

Will the Minister confirm that we will get the first taxing right on UK assets? For a UK permanent establishment of an overseas bank, we should not be crediting overseas tax against our tax so that we end up with no levy on UK assets that we are effectively guaranteeing. Will we credit overseas tax only if that territory is, for example, first in line to be paid any claims if there was a default on the assets?

[Jane Ellison]

That is a typically erudite question from my hon. Friend, to which I shall attempt to respond during my remarks following the comments of the Opposition Front-Bench spokesman.

I was saying that were the Government not to proceed with this measure, that would risk unfairly burdening certain banks and damaging UK financial sector competitiveness. The regulations address such a risk by supporting UK business and creating a level playing field, so I hope they are approved. I am happy to respond to further questions.

--- Later in debate ---

[Jane Ellison]

This was a thoughtful debate and I thank colleagues for that. I shall address some of the general issues that came up, starting with the question of the balance between ensuring that banks are taxed enough and make a substantial contribution to the economy, and competitiveness.

The Government have been clear that banks should make a fair contribution, to reflect the risk that they pose to the economy. The shadow Minister, the hon. Member for Bootle, revisited some of the reasons for that, which are very well known. Since 2010 we have introduced a number of measures to ensure that that happens: the bank levy, a tax on banks’ balance sheets introduced in 2011, which has raised £12 billion; an 8% corporation tax surcharge introduced in January and forecast to raise £7.1 billion in the next five years; restrictions on the amount of profit that can be offset by historic—that is pre-April 2015—banking losses resulting from the financial crisis and misconduct scandals, which are expected to raise an additional £5.5 billion by 2021; and restrictions on the amount of tax relief available for compensation payments associated with misconduct and mis-selling. Those were forecast to increase banks’ tax payments by about £1 billion across the period 2015 to 2020, but we expect that actually they will raise more.

At the same time as we ask banks to contribute to reflect the risk that they pose to the economy and to make a fair contribution we are always focused—even more so in the light of the decision to leave the EU—on making sure that all sectors of the UK economy retain their competitiveness. We feel that the banking sector does that: the regime is sustainable and fair and constitutes a competitive long-term plan for taxing the sector. By 2021 banking firms will pay 25% tax on profit—that is still the lowest among G7 nations—alongside a 0.1% levy on UK balance sheet liabilities.

Of course, banks consider a number of factors in deciding where to locate. The UK is the world’s leading financial centre. Colleagues may be interested to know that last year alone we exported £63.7 billion in financial services, insurance and pensions. Of course, we enjoy other advantages here, such as strong regulations, strong and independent regulators, and a very skilled workforce. We are trying for balance, and double taxation is at the heart of the issue of balance. We believe that people should be taxed fairly, but not taxed twice for the same thing.

I want, in general terms, to assure the Committee that the UK intends to retain its world-leading position on international taxation matters. The Prime Minister reiterated that at a recent G20. We were at the forefront of the OECD’s base erosion and profit shifting project, looking more generally at the issue of large multinational corporations, and, since 2015, 30 measures have been brought in or are coming in to deal with avoidance and evasion. As a country, we have stepped up on this issue and taken an international leadership position. We do not intend to relent on that.

A point was made about HMRC, and this comes up a lot. It is true that HMRC is going through a significant transformation—for example, some of the customer service aspects of what it does are being centralised from well over 100 different offices around the country to 13 regional centres. However, the upskilling and the investment in compliance and enforcement have been significant. For example, another £800 million was put into this at summer Budget 2015. I am meeting the senior HMRC director this afternoon to talk about it; we have regular meetings, and there is a laser-like focus on the issue. It is worth noting that HMRC has done a really good job in bearing down on this. The UK has one of the smallest and certainly one of the most transparent tax gaps in the world, and that is in no small measure owing to the work that we do on that at the same time as maintaining a position of international competitiveness.

I hope that what I have said gives the Committee a general assurance that we are trying to strike a balance. Basically, our mantra is that taxes should be competitive and fair, but paid. If people stick to that mantra, we cannot go too far wrong.

Let me deal with one or two specific questions. It is worth stating for the record that the measure that we are debating is not about implementing EU legislation. This relief is not required by the EU. The bank levy is a UK tax, and the Government announced in 2015 the decision to provide double tax relief, because it delivers on our policy against the double imposition of taxation in general and in respect of the bank levy in particular. This is a UK decision. It was not forced on us; it is a response to the European measure. Allowing relief for instances of double taxation risks will ensure that certain banks are not unfairly burdened and will avoid creating competitive distortions in the market. I hope that that explanation clarifies the situation.

My hon. Friend the Member for Amber Valley asked for confirmation that the UK would retain primary taxing rights over UK assets. The short answer to his question is yes. Double taxation relief is being given only in the case of non-UK entities and their liabilities. I hope that that gives him some reassurance.

The shadow Minister mentioned forum shopping. I have made some general comments to show that we remain focused on ensuring that we do not go in that direction, but as further reassurance let me say that I hope that any tax relief under this measure is strictly limited to charges that are paid on the same balance sheet. If overseas charges apply to a smaller proportion of the balance sheet or a charge at a lower rate, any relief will be correspondingly reduced. This is just a proportionate response to the levies that are being imposed through the European scheme.

In closing, I want to take up the point made by the hon. Member for East Lothian. Of course, over the next few years we will keep this matter under review. Clearly, as we exit the EU some aspects will change. We will keep that under careful review and consider the implications. I come back to the first principle that we have applied across a whole range of relationships around double taxation. That will always be our guiding way through on these matters, but clearly there will be implications as we leave the EU, and we will deal with those in due course.

Question put and agreed to.