UK Bank Levy: UK Announces Consultation on the Detail of its New Tax on BanksSullivan & Cromwell LLP - July 19, 2010
In his Budget statement, delivered on 22 June, 2010, the Chancellor of the Exchequer announced that the UK will introduce a tax based on banks’ balance sheets from 1 January, 2011, to be known as “bank levy”. Once fully in place this tax is expected to generate around £2.5 billion annually. A consultation has now been published which sets out further detail as to how the bank levy will operate.
The tax will apply to both UK-headed banks and non-UK headed banks with operations in the UK. In particular the tax will apply to: (1) the global consolidated balance sheet of UK banking groups and building societies; (2) the aggregated UK subsidiary and UK branch balance sheets of foreign banking groups; and (3) the balance sheets of UK banks and UK bank branches in non-banking groups.
Once the relevant balance sheet has been identified, the tax will be calculated annually as a percentage of the total equity and liabilities shown on the relevant balance sheet excluding: (1) Tier 1 capital; (2) insured retail deposits; (3) repos secured by sovereign debt; and (4) policyholder liabilities of retail insurance business within banking groups. Some adjustments to balance sheets may be required to ensure a uniform method of netting derivative assets and liabilities. It is proposed that the percentage will be 0.07%, with a lower rate of 0.04% for 2011. Funding of greater than one-year maturity will be charged at half the rate otherwise applicable (i.e. 0.02% for 2011 and 0.035% thereafter).
The tax will not be covered by the UK’s existing double taxation treaties. The government plans to initiate discussions with other countries that introduce similar taxes (France and Germany have committed to introduce similar taxes) to avoid double taxation under such taxes.