David Prosser's Outlook: Tax doesn't have to be all take, take, take

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The Independent Online

Business groups such as the CBI have given the Treasury a tough time this year over the taxation of multinational companies. Richard Lambert, the organisation's director-general, has repeatedly warned that more companies will choose to move their tax base elsewhere if the Government presses ahead with reforms of the way in which overseas profits are taxed. Let's hope then, that Mr Lambert will be equally quick to congratulate the Exchequer for the munificent rules that look likely to enable the investment bank Merrill Lynch to avoid paying any UK tax for many decades to come.

Filings made public by Merrills yesterday show that the lion's share of investments on which it has incurred billions of pounds of losses during the sub-prime crisis were owned through a subsidiary based in this country. Merrill Lynch International, the subsidiary in question, paid £139m in UK tax in 2006, the last year for which details are available. On that basis, thanks to its right to carry forward credit crisis-related losses of $29bn against future tax bills, it will get away with paying no tax at all here for the next 60 years.

All perfectly legitimate tax planning and, of course, this is an extreme example of how a company can use losses to reduce its future tax bill. Nor is this a tax issue that is in any way comparable to the worries that companies such as Shire, WPP and others have raised.

But the point about tax systems, especially when they are as complicated as the one that operates in this country, is that they throw up odd quirks for which it is pretty difficult to legislate. The situation at Merrill Lynch – a multinational company if ever there was one – is certainly oneof those.

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