New report: how to tax banks
Bankers are very successful at avoiding taxes. They operate from secrecy jurisdictions where they can book a large part of their profits. Their services are exempt from value added and other forms of sales taxes. Their trades in currencies, derivatives, gilts, swaps and other over-the-counter transactions are largely untaxed. They claim tax relief on the massive bonuses they pay themselves from profits.
There are no sound economic reasons why they should receive these implicit subsidies on their largely rent-seeking activities. This is more about power politics than economics. Bankers are extraordinarily adroit, not to say brazen, at holding governments to ransom. Yet when their houses-of-cards come crashing down around their heads, bankers are happy to call on taxpayers to dig them out of the wreckage.
Clearly something needs to be done to make bankers pay their way in the communities where they operate. At the same time, financial markets need to be shaped in ways that will protect us - and the bankers- from their "irrational exuberance" (Alan Greenspan's famous phrase being a polite way of talking about a toxic combination of greed and foolishness).
The International Monetary Fund has invited submissions from civil society and others on how banks might be taxed in future. These submissions form part of a consultative exercise in advance of the IMF issuing a report to the G-20 Summit meeting in Canada later this year on how bankers can contribute towards the cost of the chaos they have caused.
In cooperation with our colleagues at Christian Aid, the Task Force on Financial Integrity and Economic Development, Tax Research UK (lead authors of the report) and the Trade Union Congress of the UK, we have submitted a report which recommends significant reform of taxation of banks, not simply as a means of raising additional revenue, but also to shape the activities of banks in ways that will make them less harmful and more tax compliant.
Our core recommendations include:
1. A tax on foreign currency exchanges.
2. A tax on derivative trades.
3. A tax on share transactions.
4. An accounting standard to require banks to report their profits and losses, tax paid and limited balance sheet information for each jurisdictions where they operate.
5. Global adoption of a General Anti-Avoidance Principle to strengthen the position of tax authorities wanting to challenge sophisticated tax avoidance structures used by banks to shift profits to low or zero tax jurisdictions.
6. Binding Codes of Conduct for banks requiring them to adopt tax compliant policies.
7. Limitations on the time period that banks can carry forward their losses incurred during financial crises for offset against future profits.
8. Limitation on the amount of bonus distribution that can be offset against profits for the purposes of reducing the bank's tax liability.
We don't claim these recommendations will wholly solve the problem of bad bankers, but they will go some way towards remedying the appalling culture of greed and anti-social behaviour that has engulfed the banking industry.
You can read our report and recommendations here. Read Richard Murphy's additional points on the incidence of taxing bankers here.