How the US subprime disaster is hitting UK tax revenues
Merrill Lynch may have secured itself up to 60 years’ freedom from the UK taxman as a result of offsetting losses from its US parent firm.
In a routine regulatory filing earlier this month, it has been revealed that the US firm has booked $29bn of losses via the London-based subsidiary’s accounts. The majority of these losses arose from Merrill’s sale, last month, of $30.6bn worth of mortgage-related securities at a cut price of only $6.7bn to a hedge fund. The UK firm will be able to carry these losses forward and offset them against profits for some considerable time. The Financial Times calculates that, based on the current corporation tax rate of 28%, the firm’s future UK tax bills could be cut by up to $8bn.
Further similar offsets could emerge. Merrill’s success in getting all those subprime bad debts off their books may become a precedent for other US bankers to follow – and most of these will have international company structures down which to cascade losses.