Multinationals and their finance engineering...

Goldman Sachs' UK tax bill falls 34pc after drop in profits

The London-based business of Goldman Sachs cut its tax bill for the first half of the year by just over a third after the US investment bank was a hit by a fall in profits.

Lloyds Blankfein, chief executive of Goldman Sachs, which saw first-half pre-tax profits at its London-based business fall by 17.4pc

By Harry Wilson 06 Sep 2011

In its accounts for the first six months of 2011, Goldman Sachs International recognised a tax credit of $156m (£96m), largely as a result of a $153m paper rebate on UK corporation tax.

The "rebate" cut Goldman Sachs International's tax bill for the period by 34pc to $303m after the bank accounted for its overpayment of UK corporation tax in previous quarters after being overly bullish on the prospects for its business.

Under UK law, companies must pay corporation tax on a quarterly basis based on their projections of their full-year profits.

The size of Goldman Sachs International's writeback of its corporation tax for the first six months of the year demonstrates the speed with which markets have deteriorated in 2011 amid the panic caused by the eurozone sovereign debt crisis.

First-half pre-tax profits at the London-based business fell by 17.4pc year-on-year to $1.21bn. Revenues from the bank's institutional client services business fell 44pc to $2.17bn, largely as a result of falling revenues from the fixed income, currencies and commodities division.

Businesses such as fixed income sales and trading, as well as commodities, were big earners for Goldman Sachs but have been among the hardest hit by the downturn in trading volumes as investors become more risk averse.

Last month, it emerged that Goldman Sachs International had invoked a clause in the contracts of its senior London-based staff to cut their basic salaries back to their pre-crisis level.

In common with other major investment banks, including Citigroup and UBS, Goldman Sachs increased basic salaries as bonuses were cut back in the wake of the financial crisis in 2008.

According to its latest filing, Goldman Sachs International paid taxes of $459m in so-called "provisions and other timing differences" in the first half of this year. This is more than double the $210m the bank paid out last year.

The majority of this payment is understood to be made up of income tax on bonuses paid to London-based staff of Goldman Sachs.