Brussels puts forward financial sector tax options
07.10.10 @ 17:24
BRUSSELS - 'Nothing is certain but death and taxes' goes the saying, with a new proposal from the European Commission designed to get the European financial sector to pay more of the latter.
As cash-strapped governments cast around in search of new funding sources, Thursday's (7 October) non-legislative communication from the commission weighs up the viability and potential revenue gains to be made from a financial transactions tax (FTT) and a financial activities tax (FAT).
"We must make sure that the financial sector is making a contribution to public finances," said the EU's taxation commissioner Algirdas Semeta. "This is especially important due to its receipt of support during the financial crisis."
The financial sector in Europe and elsewhere is currently exempt from paying Value Added Tax (VAT).
In its paper, the commission advocates EU support for the FTT at the global level, but reiterates recent comments made by ECB President Jean-Claude Trichet that a unilateral European attempt to push ahead with the tax would result in firms moving their financial transactions to a different jurisdiction.
Swedish attempts to introduce a similar tax in the 1980s caused a sharp decline in the trading of certain financial products within its borders, with Stockholm now one of the leading EU opponents of the tax. Others argue that the issue of relocation is overblown.
London is also a strong opponent to the tax however, with studies showing the City would bear the brunt of a European FTT due to the huge volume of trades that take place inside the square mile. US opposition is also seen as a major stumbling block to its eventual implementation.
Conversely, France and Germany are vocal supporters of the measure, popular among many voters and NGOs as a means to raise badly needed funds to fight poverty and climate change.
Reacting to the publication, the European Trade Union Confederation said it was deeply disappointed. The plans are "unsatisfactory in that they deflect from the aim of taxing short-termist, highly speculative transactions based on high speed trading that do not serve the needs of the real economy," said general secretary, John Monks.
Commission estimates put the potential revenues from an FTT at between €20-150 billion per year in the EU. This compares with the estimated €25 billion that could be generated from a more conventional five percent financial activities tax, a measure the commission believes could be implemented at European level without running the risk of relocation.
The communication proposes three alternative FAT options: a direct tax on all profit and wages in the financial sector, a tax specifically targeting economic rents, and a tax concentrating on profits gained through riskier activities. Whereas the FTT targets transactions, the FAT taxes corporations. Legislative proposals are expected to follow sometime next summer.
The initiative is independent from a recent proposal on bank levies from EU financial services commissioner Michel Barnier, under which revenue gathered from the levy would provide member states with funding for further bank bailouts in the future, should they prove necessary.
Mr Semeta refused to be drawn on whether some form of EU financial sector tax could contribute to the EU's own budget in the future, but a commission 'budget review' later this month is set to include the mechanism as one potential option.
The issue is strongly opposed by a number of governments who fear a self-funding EU would become increasingly independent from national capitals.
"The EU needs to drop this fixation with granting itself tax-raising powers of any kind," UK MEP Kay Swinburne, a member of parliament's European Conservatives and Reformists group, said on Thursday.