Trilateral Meeting of the German, Netherlands and British Branches of the International Fiscal Association

1. Trilateral Meeting of the German, Netherlands and British Branches of the International Fiscal Association International taxation on the road to economic recovery Ian Menzies-Conacher 3 November 2010

2. Financial Services Tax and Recovery “Measures that impose new costs on financial institutions will need to reflect and be coordinated with regulatory changes under consideration. This is critical for ensuring policy coherence, and avoiding adverse effects on economic growth from placing an excessive burden on the financial sector.” IMF report for the G-20 6 September 2010

3. Early Stage Bank Taxes • Payroll tax – announced by previous UK Government in December 2009 with stated intent that banks should use their profits to build up their capital base. • However if instead bonuses paid then a special one-off levy of 50 per cent on any individual discretionary bonus above £25,000 - paid by the bank not the employee – was charged • Expected to yield £550m – actual yield £3.5bn • France introduced similar scheme but with much lower yield 6 September 2010

4. IMF Report to the G20 Mandate was to report on: “...how the financial sector could make a fair and substantial contribution toward paying for any burden associated with government interventions to repair the banking system.” 6 September 2010

5. Interim report – April 2010 Recommendations 6 September 2010 • 2 forms of contribution, serving distinct purposes. • Financial Stability Contribution (FSC) – a levy to pay for the fiscal cost of any future government support to the sector. • Financial Activities Tax (FAT) – levied on the sum of profits and remuneration and paid into general revenue. • “international cooperation would be beneficial” -not full uniformity but broad agreement on base and rates. • A Financial Transactions Tax (FTT) was considered but not thought appropriate.

6. UK Bank Levy • Announced in June ‘Emergency Budget’ • Aim to raise £2.5bn and encourage more stable funding. • Double taxation – concern as UK banks taxed on global basis and foreign banks on UK operations and as not a tax on profits liabilities arising under the Levy are not covered by existing UK treaties. 6 September 2010

7. European position “..an increasing number of Member States are moving ahead by introducing country specific systems of levies for which the parameters (base, rate and scope) differ ..This divergence in parameters has resulted in double taxation issues and risks creating competitive distortions and relocation of activities within the EU financial sector.” Council paper 14th October 2010 6 September 2010

8. EU examples of double taxation risks Council paper 14th October 2010 6 September 2010

9. Tax Losses • OECD paper – recognises some issues for both banks and fiscal authorities to address but broadly recognises that where commercial profits taxed relief should be available for commercial losses • TUC paper – The Corporate Tax Gap “no other corporate sector enjoys anything like the tax benefit that banks now do as a result of losses that this bailed out sector seems to benefit from” 6 September 2010

10. Foreign Profits - Branches • 2010 UK Budget “move to a more territorial basis for taxing the profits of foreign branches, and consult in summer 2010 on options for retaining foreign branch loss relief as part of this, reforming the rules in 2011. • Discussion Document – July 2010 • Exemption basis; subject to election not to apply and other options • Losses • Issues of scope – treaty v non treaty, income v capital, capital attribution • ‘CFC’ style anti-avoidance 6 September 2010