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Bank uses US losses to take 60-year tax break
Simon English, City Correspondent15.08.08
Merrill Lynch might not pay any corporation tax for the next 60 years, it emerged today.
The giant American investment bank, which employs thousands in the City, has made losses of $29 billion (£15 billion) for its exposure to the US subprime mortgage crisis.
But it has charged the amount to its British arm, meaning it can offset the losses against corporation tax for decades to come.
Accountants say that the move, which is set to spark anger among ordinary taxpayers, is legal but unusual.
Merrill Lynch made dramatic writedowns on investments linked to the US housing market. With millions of Americans now struggling to keep up mortgage repayments, the investments have sunk in value causing an economic crisis across the globe.
All big banks have suffered, but so far Merrill is the only one to charge the entire loss to the UK. The move will reduce payments to the Government at a time when its finances are in disarray. It will also raise eyebrows in the City and cause consternation at the Treasury.
Robert Willens, a tax expert, said the move is not common. "Merrill will have to be able to say that the UK subsidiary was the owner of those securities.
"It does not matter where the derivatives unit is based or where the trades were executed. "The only thing that matters is who was the owner of the securities," he told the Financial Times. The paper calculates that if Merrill starts making profits again at the rate it did in 2006 - a record year - it still won't have to pay any corporation tax for the next 60 years.
Merrill declined to comment. If the move is followed by rivals it could have a huge impact on government coffers.
This week New York mayor Mike Bloomberg said that many Wall Street firms will pay no tax this year due to their losses.
So far this year financial companies across the world have reported writeoffs totalling £250 billion. Economists say this figure could double before the credit crunch comes to an end.
Merrill has offices across London including a financial centre at Paternoster Square by St Paul's Cathedral. which houses two of the largest trading floors in Europe.
Accountants said that the tax structure allows Merrill to offset losses from one part of the business.
John Gu, a tax expert at KPMG International, said: "It obviously makes commercial sense, though it would be subject to certain legal and tax law restrictions. No company wants the mismatch by losing money on one unit while paying tax on another profitable operation."
Merrill was founded in 1914 and has become one of the world's biggest banks.
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Reader views (8)
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If these losses were UK based then it would be acceptable but if these profits were made solely in the US then the offset should be made in America taxation.
- Ravi Shankar, London
If Merrill Lynch booked all its profits in the UK and hence paid the applicable tax then it's fair and reasonable for them to book the losses here too.
- Ian, London, UK.
Good Luck Merrill - I have no connection to them but they have employed tens of thousands in London and brought much prosperity over the years to the UK economy. If the tax laws say this is bona then they don't pay tax, simple...it would be a disgrace to change the law in retrospect, which would be typical of this partially elected mob of career politicians, who would have difficulty running a day nursery for the over 5's.
- Bondy, Spain.
