The European Commission laid out
its ideas for future taxation of the financial sector in an official
communication on 7 October.
The Commission works on the
assumption that, after having caused the financial crisis and received
substantial government support, the financial sector should make a “fair
contribution” to public finances, urgently needed by governments in the current
A tax on banks would also
complement required regulatory measures to improve the efficiency and stability
of financial markets, the Commission said. In addition, the Commission examined
the financial sector’s current contribution to public finances and assessed
that, given its exemption from value added tax in the EU, new financial sector
taxes would result in a fairer and more substantial contribution to public
finances by the industry. The Commissioner for Taxation, Customs, Anti-fraud
and Audit Algirdas Šemeta said: “There are good reasons for taxing the
financial sector and feasible ways to do so.”
The Commission favours a
two-pronged approach involving a global Financial Transaction Tax and an
additional Financial Activities Tax at EU level. Advocating a global financial
transaction tax that should be applied to a broad range of financial
instruments, including shares, bonds, currencies and derivatives, the Commission
estimates that, based on 2006 data and assuming a tax rate of 0.1 per cent, EUR60
billion could be raised from taxing stock and bond transaction alone.
This amount could be up to ten
times higher if derivatives transactions would be subject to taxation, but the
Commission acknowledged problems with establishing the tax base for these types
The Commission also recognises that
there is typically a gap between expected and actual revenues, but believes
that an EU wide transaction tax on exchange traded stocks and bonds would yield
about EUR20 billion, even if the transaction volume dropped by 30 per cent for
bonds and 20 per cent for shares. However, there would be issues, such as
relocation and tax avoidance, with implementing such a tax only on a national
level, the Commission communication noted. In contrast a global FTT “could be
an appropriate option as a revenue raiser in particular to provide financing
for global policy goals,” the Commission said.
In order to work effectively
participating countries would have to come to an agreement on financing that is
acceptable to all. “The Commission is committed to continuing to work with its
international partners, in particular in the G20, to reach such an agreement,”
the communication said.
The Commission would like to adopt
the financial transaction tax in combination with a EU-wide Financial
Activities Tax, an idea first suggested by the International Monetary Fund. It
is estimated that the FAT, which would tax corporations rather than
transactions, could raise up to EUR25 billion within the EU.
The FAT is better suited to raising
revenue for national consolidation, the EU said, because it would be more
evenly spread than a tax on transactions that mainly take place in a few
However, as the FAT would be
applied to profits and remuneration, it could contribute to existing incentives
for shifting income and profit out of the EU, the Commission admitted, saying
it would launch an impact assessment and propose policy initiatives in 2011.
The Commission will also present
its communication to EU Finance Ministers at the ECOFIN Council on 19 October
and to EU heads of state and government at the European Council at the end of
October. An EU position on financial sector taxation, aimed at encouraging international
partners to agree on a global approach, will then be presented at the G20
summit in November.