David Jetuah, Accountancy Age, Thursday 21 October 2010 at 15:21:00

Fears voiced over UK-based banks, both foreign and domestic, being hit bydouble taxation as the UK government goes ahead with bank levy while otherjurisdictions hold fire

Concerns have been raised that the government's bank levy could lead todouble taxation with other jurisdictions.

Detractors say that there is a lack of detail on how the government'scrackdown would operate alongside the efforts of other jurisdictions collectingtax from UK-based banks with a presence in their countries.

Financial secretary to the Treasury Mark Hoban unveiled the proposal for apermanent banking levy earlier today. It is hoped the levy will generate 2.5bna year from 2012-2013.

However,advisers have already warned that the UK ploughing ahead without similar rulesapplying in other countries, would disadvantage UK banks compared to foreigninstitutions with UK outposts.

The bank levy applies not only to UK banks but also to more than 200 overseasbanks operating in this country, the British Bankers' Association warned.

In a statement, the BBA said: "Questions are being raised about the UKproposing to apply tax to a global balance sheet.

"The Treasury?s statement is largely silent on how this levy would interactwith taxation in other countries.

"Until this is clearer, some banks could be taxed multiple times by multiplejurisdictions on the same activities. There is also no international consensuson how banking activities should be taxed: the G20 members still hold verydifferent views."

The Treasury's bank levy paper said it remained "of the view that the broadscope of the application of the levy to UK and foreign banking groups properlyreflects the nature of the risks that the banking sector poses to the UKfinancial system and wider economy."

The UK government's banking levy will be introduced from 1 January 2011.

Kevin Cummings, tax partner at law firm Berwin Leighton Paisner said: "Whiletoday's draft legislation is certainly less draconian than was first feared? theUK banking sector will remain discouraged by the Treasury's rush to push throughthe levy ahead of most of the UK's international competitors in financialservices."

Even if all countries adopted their own versions of a banking levy, advisersand academics have said proposals - such as those tabled by the InternationalMonetary Fund - would be almost impossible to enforce.

Further reading:

IMFplans for bank tax panned by global finance community