Corporation tax: George Osborne faces calls for New Year crackdown after revelations about world's biggest banks

Seven of the biggest banks operating in London paid a combined £21m in corporation tax in Britain last year

The Chancellor has insisted that the UK has no tolerance for 'those who will not pay their fair share of tax' (Getty Images)

George Osborne is facing calls for a New Year tax crackdown, after revelations that five of the world’s biggest investment banks paid no corporation tax in Britain last year.

Advocates for fairer taxation, including the former chair of the European Parliament’s Committee on Economic and Monetary Affairs, said that international investment banks not paying tax on profits made in Britain threatened the “financial stability” of country.

Analysis by the Reuters news agency this week revealed that seven of the biggest banks operating in London paid a combined £21m in corporation tax in Britain in 2014, despite between them generating revenues of £21bn in the UK, profits of £3.5bn and employing 33,000 staff.

Five of the banks – Morgan Stanley, JP Morgan, Bank of America Merrill Lynch, Deutsche Bank AG, and Nomura Holding – paid no corporation tax at all last year.

The filings on the seven banks – which also include Goldman Sachs and UBS AG – were only available as a result of new EU rules that since 2013 have required banks to publish profit and tax information country-by-country.

The banks used tax breaks and tax losses generated during the banking crisis to reduce tax bills, and in some cases reported losses in London while reporting profits in much smaller affiliates in countries with lower taxes, Reuters reported.

Lady Bowles, the Liberal Democrat peer and former MEP who pushed for country-by-country reporting as chair of the European Parliament’s economics committee, said the revelations could spark “a chain reaction”, with the likely public outrage forcing governments to crack down on multinationals who did not pay tax on profits made in their country.

“The basic rules should be that you pay tax where the work is done,” she told BBC Radio 4’s Today programme.

“With banks there is a financial stability issue. [Bank of England Governor] Mark Carney gave a big speech saying financial services are eight times our GDP and that’s one of the reasons why we want to be able to have more capital buffers for our banks…That’s part of the protection. The other part is you should pay tax where the risk is taken,” she added.

The Chancellor has insisted that the UK has no tolerance for “those who will not pay their fair share of tax”.

While there is no suggestion that any of the investment banks have broken the law, the revelations come in the wake of criticism over the tax arrangements of other high profile multinationals including Amazon, Google and Netflix.

Responding to the tax revelations, a Government spokesperson said Her Majesty’s Revenue and Customs (HMRC) had collected £22.9bn from the banking sector last year. A new eight per cent tax on banking sector profit will also be introduced from 1^st January 2016.

A government spokesperson said: ““The UK is home to some of the world’s most successful banks and the government has been clear we that expect them to play their part in finishing the job of fixing the public finances.

“That is why we're creating a tax regime for the banking sector that is sustainable and fair, while maintaining the competitiveness of the UK as a global financial centre and supporting lending to the wider economy.”

However, Labour’s Shadow Chancellor John McDonnell said that Mr Osborne had “no serious answer to the problem of tax avoidance” and said that the recent closure of 153 tax offices suggested “he doesn’t really want to offer one either”.

“We all know that it is those businesses and taxpayers who pay their fair share in tax who have to carry the burden for those who do not, so you’d think this would encourage this Government to take tax avoidance in the city seriously,” he said.

Jonathan Isaby, chief executive of the TaxPayers' Alliance, said: “The power to make our tax system simpler lies in the hands of politicians, so they must stop grandstanding and actually do something to reform it.”