Bank Levies in the UK, France and Germany: A Comparison of the New Levies on Banks

Sullivan & Cromwell LLP - May 6, 2011

The United Kingdom, France and Germany have all recently finalised, or are in the process of finalising, details of their respective bank levies. This memorandum compares the salient features of each bank levy. Four main differences may be outlined in summary. The first difference is the computation of the basis for each levy. The United Kingdom and Germany have adopted a similar approach, taking into account total equity and liabilities subject to certain exceptions, e.g., for minimum regulatory capital. By contrast, the French bank levy is based on minimum regulatory capital. Even though both aggregates are clearly related in the banking industry, the different bases of each levy make it difficult to directly compare the financial burden on banks in each country. Second, the aim of the German levy is to create a dedicated restructuring fund to be drawn upon in the event of financial crisis, whereas the proceeds of the United Kingdom levy and the French levy will feed into general revenues. Third, France and the United Kingdom will tax banks or banking groups resident in their respective jurisdictions on a worldwide/consolidated basis, while the German bank levy is computed on a standalone basis. Fourth, rules with respect to double taxation relief are not yet harmonised. French domestic rules provide for a tax credit granted to non-French banks carrying out banking operations in France through a taxable branch or taxable subsidiaries but this relief is subject to a reciprocity condition. In the United Kingdom, double taxation relief remains subject to the negotiation of specific agreements with relevant countries or to the enactment of specific regulations in this respect. As the German bank levy is structured as a levy and not as a tax, it is not entirely clear whether double taxation relief will be available, and certain characteristics of the German bank levy are subject to the issue of the relevant ordinance (the “German Ordinance”) which is still in draft form dated March 2, 2011. This memorandum does not provide a detailed description of the characteristics of each bank levy. For further information, please refer in particular to our client memoranda of November 10, 2010 and December 13, 2010 on the UK bank levy, and October 1, 2010 on the French bank levy.