Wednesday, 10 June 2015

Badly designed taxes, part the manieth.

From City AM:

HSBC moved a step closer to leaving the UK yesterday, piling pressure on chancellor George Osborne to take action to persuade the bank to stay...

Osborne is speaking at the Mansion House tonight, and is expected to soften his bank-bashing tone. But the industry does not expect him to take any big steps, such as cutting the bank levy which he introduced and has hiked nine times.

That levy is a major cost for HSBC – it is a 0.21 per cent charge on its global balance sheet, and is expected to cost it $1.5bn (£975m) this year. By contrast Barclays is set to pay around £600m, and RBS less than £300m.

Well, duh.

There is a basic principle of taxation called 'the territorial principle', which means that governments can get away with taxing profits and assets in their own country, regardless of the residence of the earner/owner, but if they try taxing residents of their own country on their income and assets in other countries, those residents will go elsewhere.

In other words, the bank levy ought to be applied only to the UK portion of banks' balance sheet, regardless of whether they are UK banks or not, in which case HSBC's bank levy would fall by three-quarters and they probably wouldn't be too fussed about it.

To give a silly example, we can charge fuel duty on fuel purchased/used in the UK, but we cannot expect UK residents to record how much petrol they purchase/use when they are abroad and then pay tax on it here.

(Taken to its logical conclusion, the tax which best complies with the territorial principle is LVT and similar taxes).


Woodsy42 said...

You would expect LVT, or any property owning tax, to be territorial by definition - but actually I can fully envisage a chancellor initiating a wealth tax that could include foreign held property.
Just because a tax looks simple and fair doesn't mean government can't make it exactly the opposite.

mombers said...

Doesn't Denmark charge LVT on foreign owned land? I heard some Danes are paying LVT on their Scottish land... The Danes are a very nice people though so don't go to the enormous lengths that our landowners do to disguise their identity.

Kj said...

Mombers: Denmark has two property taxes, one is straight LVT, which is considered a local tax and is for property within the municipality, and one is a tax on real estate (total value) held by danish persons. The latter is global with reductions for taxes paid on the property abroad.

Mark Wadsworth said...

W42, they can mess up anything, but that is then not LVT any more.

Kj, that is very decent of the Danish. The English would probably just lie or put the land into a trust or an offshore company or something.

Robin Smith said...

Members, the Danish raped and pillaged quite a bit too. Then became the french which is worse