This is a ludicrous position to take.
Cameron says the UK will not bail out Greece.
But we’ll offer more tax losses to the banks for their failure to recognise risk instead.
And those tax losses reduce our tax revenue.
Which amounts to much the same thing as bailing out Greece – except we pass the benefit to the banks instead.
So, if the UK banks take part in a bailout of Greece by taking a haircut on their loans to Greece, we are subsidising the banks if we don\’t tax them on the profits they don\’t make?
What?
The only way this makes any sense at all is if all money really belongs to the taxman, we just being allowed to play with a little of it until he decides he wants it.
Wheras in the real world, you only pay corporation tax on your cumulative profits. Acummulate less profit, pay less corporation tax.
You\’d expect an accountant to get that really.
Declaring your losses to offset against profit is your legal duty as this accountant points out:
http://www.accountancyage.com/aa/news/1757787/new-returns-alarm
“…all money really belongs to the taxman, we just being allowed to play with a little of it until he decides he wants it.”
But that is exactly what Richard believes. He has said so in other posts. He has proposed that profits should be regarded as “conditional property”, i.e. they don’t belong to you until the taxman says they do. I’ve tried arguing with him about this – told him it was a very dangerous principle since if accepted it would mean the state would have carte blanche to seize corporate profits if they wish, regardless of legislation. Don’t think I got anywhere.
Richie has outdone himself with this one. The phrase “not even wrong” comes to mind.
I believe what has happened is that he read “banks being asked to take losses” to mean the banks were being offered some kind of sweetheart tax deal. The truth is of course that they’re being asked to agree to a debt forgiveness – tax losses may follow from this but that’s just the way the tax system works.
Incidentally I say “may follow” because any prudent bank will have already have impaired/marked down its Greek bonds, so a formal forgiveness could either result in some further losses, make no difference, or even trigger a profit (i.e. if the forgiveness is less than the bank had anticipated).
Also note that banks have to a great extent de-risked themselves, and the Greek exposure is increasingly held (directly or indirectly) by hedge funds and others who purchased at a sizeable discount to par and are hoping the final restructuring will result in a profit. Where this has happened, the banks have already locked in their loss and won’t be affected in the slighest by anything that happens now.
And the final complexity – and I know Richie hates complexity – is that there’s tension between the position of a bank that’s exposed to Greek risk (who will want a restructuring that isn’t technically a credit event) and a bank that thought it had derisked itself with CDSs etc, but won’t get the benefit of that protection unless the restructuring is a credit event.
So the bottom line is that the whole Greek disaster and its effect on the world financial system is jolly complicated, but the tax treatment of UK banks is the last thing anyone should worry about.
Several banks aren’t paying UK tax and aren’t likely to for several years due to accumulated losses. So their shareholders are being asked to foot the whole of the bill (they may possible reduce future tax liability in a few years time but by less than one-quarter of the loss they suffer now).
Murphy has got it completely twisted saying that the taxpayers are giving money to the banks whereas the Treasury is asking the banks to accept losses.
Finally. The Penny Drops.
Banks aren’t even being to book a loss. They are being asked to roll over their current bonds into loans when they mature, rather than requiring redemption at maturity, so no losses at all.
The worst bit of the whole post is that Murphy expects banks to be punished for taking risks by lending to governments, while simultaneously expecting someone to fund a growing UK deficit that is far larger than the Greek deficits.
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“The only way this makes any sense at all is if all money really belongs to the taxman, we just being allowed to play with a little of it until he decides he wants it.”
Actually Tim, I think that is what he believes.
I am surprised that you haven’t guess this before now!
As others have said, that is precisely what he does believe. In his mind, society is a parental model; the State is the wise parent that provides for you and knows what is best for you, then you have a bit of pocket money to spend on sweets and comics.
By not working weekends and public holidays Ritchie is foregoing income. But we won’t tax him for his failure to get off his arse. And that reduces our tax revenue. Which amounts to the same thing as bailing Ritchie out.
wat dabney (#10), let’s go further than that.
I wonder if Murphy charges full commercial chartered accountant’s rates on the work he does for UKuncut and the like.
If not, then shouldn’t he be paying tax as if he had?
So it’s wrong to reduce the banks’ losses because of their “failure” to make profits on their Greek bonds?
Murphy’s a chartered accountant, and they can make over £5 million per year (well, John Connolly, global chairman of Deloittes, does).
Murphy’s also a writer, and they can make even more (well, that Rowling woman does).
So shouldn’t Murphy, on his own theory, be taxed on a theoretical income of £5 million? Because anything else is subsidising his “failure” to run his business properly?
Time for the European Union to introduce the ‘anti dog-eat-dog’ act I think.
That should balance things out between those who’s successful businesses are clearly profitting at the expenses of less capable businesses.
Mind you, perhaps the banks would like Murphy’s line of argument.
If these type of losses should not be deductible, then presumably the profits should not be taxable. So the “casino banking” side of the business is to be treated like gambling, and left outside the tax system.
(Yes, I know, the ‘retail vs casino’ split is ridiculous and impossible to define sensibly, but let’s amuse ourselves by pretending that there’s a logic to what Murphy says).
Marc Daniels:
“exposed to Greek risk”
Well,–that’s one way of putting it!