Merrill to avoid UK tax after $29 bln loss

LONDON (Reuters) - Merrill Lynch's recent woes have one big silver lining - reducing its tax burden in the UK by billions of dollars.

Merrill's losses on repackaged debt, known as collateralised debt obligations, allowed it to more than double, to $29 billion (15.6 billion pounds), a net operating loss it can carry forward to cut its UK tax bill in coming years, according to a regulatory filing by the investment bank.

At the end of the last year Merrill's U.K. net operating loss carry forward totalled $13.5 billion.

A Merrill spokesman in London declined to elaborate on the tax matter, which was contained in the firm's quarterly filing with the U.S. Securities and Exchange Commission and first reported by the Financial Times.

Merrill shares, which have tumbled 51 percent so far this year, were up 29 cents, or 1.2 percent, in morning trading on the New York Stock Exchange, about in line with the brokerage sector as a whole.

Almost all of Merrill's global activity in the CDO market was channelled through Merrill Lynch International, its UK-based subsidiary, the FT said.

Repackaged debt tumbled in value following the U.S. subprime crisis and Merrill sold $30.6 billion of these securities to buyout firm Lone Star Funds last month for just $6.7 billion.

Merrill can carry forward its UK operating losses indefinitely for tax purposes, the paper said. At the current corporation tax rate of 28 per cent, it will be able to lower its tax bill by as much as $8 billion, it said.

A government spokesman said tax law did not allow profits and losses to be transferred across borders.