What impact will the G7 tax deal have on banks?

At their recent meeting in London, the G7 finance ministers and central bank governors endorsed US president Joe Biden’s call for a global minimum corporate tax – though opting for a lower target of 15%. Their intentions were signalled under the heading of “shaping a safe and prosperous future for all” in the communique, which also included commitments on common principles and standards for central bank digital currencies.

The tax proposal will be taken to the G20 meeting in July to see if an agreement can be reached, and then on to the 139 participating countries of the Organisation for Economic Co-operation and Development’s ‘Inclusive Framework’ on corporate tax later in the year.

While many consider this to be a directed attack on the US tech giants, such as Amazon, Facebook and Google, as well as other multinationals that have come under fire for avoiding tax in multiple jurisdictions across the world, undoubtedly the tax plan will also have an impact on banks.

In last year’s Top 1000 World Banks feature, capital markets and investment banking editor Marie Kemplay analysed how much tax banks were paying and picked out the leaders in terms of tax paid as a percentage of operating income for the financial year 2019.

As she wrote then, “The amount of tax being paid by banks is an ongoing issue of considerable global interest, and our analysis suggests Australian banks pay the highest proportion as a percentage of net operating income, at 13.28% on average. Although Indian bank HDFC tops the table of individual banks paying a high proportion of tax, three Australian banks hold the second, third and fourth positions, with Asia-Pacific the leading region.

“It is perhaps relatively unsurprising that Australian banks are at the top of the table, given that since 2017 the country’s largest banks have faced an additional levy, which is paid on balance sheet liabilities. Of the 20 banks which pay the most tax, all are within Asia-Pacific or Europe.”

Clearly, the vast majority of banks will have to increase their contributions if the G7 proposal is widely adopted. In the top 20, only HDFC Bank paid more than 15% of its operating income in tax. Conspicuous by their absence in this list, all US banks in the Top 1000 paid less than 11% in tax in 2019.

As we start to crunch the numbers for this year’s Top 1000 World Banks ranking, published in the July issue, it is important to appreciate that tax is just one of the 123 data points that The Banker Database tracks year on year. This year, we will be looking at how the pandemic and the wider operating environment has impacted profits, provisions, non-performing loans, and employee numbers, among other parameters. We are also running our best-performing bank methodology for the G20 countries, benchmarking banks against their domestic peers.

To order your copy of the Top 1000 World Banks issue, contact TheBanker@ft.com

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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