CMA has launched a working paper on the corporation tax surcharge (CTS) and bank levy under its retail banking market investigation. Whilst competition was not itself an objective of the policy changes, CMA has examined the impact of the proposed changes on the projected tax liabilities of different banks over the next five years to assess the potential impact on competition. CMA findings include:
- there is currently no strong evidence that introduction of the CTS combined with bank levy changes will deter entry, expansion or result in banks exiting. However, CMA notes that the full impact of the tax changes may take time to emerge;
- the introduction of the CTS and the changes to the bank levy will reduce the tax advantage of smaller banks (including new entrants) to whom the levy did not previously apply;
- in 2021, when the change to the base of the bank levy from global to UK balance sheet liabilities takes effect, the six largest retail banks will pay approximately 10-15% compared to approximately 7% for other retail banks;
- future increases in the CTA threshold could maintain the previous tax advantage of smaller banks, but would reduce the revenue raised at the current tax rate;
- losses arising prior to 1 January 2016 are excluded from the calculation of total taxable profits. Consequently banks that entered recently are not able to offset start-up losses incurred prior to January 2016 against the CTS, although they will be able to do so with later start-up losses. Similarly, smaller banks, including mutuals, are unable to offset legacy losses; and
- digital wallet providers are not impacted because they are not regarded as banks for CTS purposes even though they may compete against retail banks for some services. This could give them a competitive advantage over banks subject to the CTS.
Consultation closes on 11 March. (Source: CMA consults on corporation tax surcharge and bank levy)