HSBC’s UK tax bill looks to be £566 million less than I’d exepct

From Tax Research, pasted in full:

I’ve been looking at HSBC’s accounts, out today.

The company made pre tax profit of $20,649 million and had a tax charge of $5,315 million. That tax charge splits down like this:

That I can find HSBC does not say anywhere how much profit it makes in the UK. But since the UK tax charge for the year was $60m at a rate of 24.5% on average the taxable profit looks to have been $245 million.

Now, let’s look at that a different way. Let’s apply the unitary apportionment formula to group profits. From page 335 I know the company had 48,000 employees in the UK out of 270,000 in all.

And from page 40 of the media release I can get that $9,149 of income out of $68,330 was in the UK, whilst $18,391m of assets out of $79,935 were in the UK.

The classic unitary apportionment formula says that profit should be weighted to a country in proportion with one third of the weighting applying to income, assets and staff. So the maths is:

UK profit = $20,649/3  x ($9,149/$68,330) + $20,649/3 x ($18,391 / $79,935) + $20,649 x (48,000 / 270,000)

Now I make that $3,728 million of profit attributable to the UK on this basis. Tax on that would be $913 million. But $60 million was paid.

So for hosting HSBC and taking its risk the UK lost out on tax of $853 million, which is a little over £500 million – enough to pay outright for a couple of hospitals.

So, HSBC, tell us why that happened, will you? And how? And why you paid it somewhere else instead?

The case for country-by-country reporting for banks is compelling.

TJN: expect to see more analyses like this. Combined reporting - one of the key elements of unitary taxation - would require companies to disclose this sort of information, and if it were broken down by country it could allow governments the world over to check the tax bills of the multinationals that operate there. Combined reporting of this kind -- which is really just a transparency requirement, and who could argue with that -- complements existing country by country reporting standards being pursued. And this could be a very powerful tool indeed.