Friday

12th Aug 2022

Banks to pay 'fair share' under EU transactions tax

  • Banks must be made to pay "their fair share" the commission says (Photo: Trois Têtes)

The European Commission on Wednesday (28 September) unveiled plans to slap a tax on financial transactions in the EU, a scheme that the EU executive hope will raise some €57 billion a year in revenues.

Jose Manuel Barroso, the president of the commission announced that the college of commissioners had adopted the proposal, long expected and dreaded by the City of London, during his state of the union address to the European Parliament in Strasbourg.

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All financial transactions in which at least one party is located in the EU would come under the purview of the proposed rules. The commission would like to see both derivative contracts and trades in shares and bonds taxed at 0.1 percent from January 2014.

Brussels said that now, when governments are putting the squeeze on public services in order to unwind heavy public debtloads, was the time to introduce such a measure to ensure that the financial sector “makes a fair contribution”.

Public debt in all 27 EU member states jumped from below 60 percent of GDP to 80 percent at the beginning of the crisis, largely as a result of the financial sector receiving €4.6 trillion in assistance from governments.

The commission also said in a statement outlining the proposals that banking world is currently under-taxed by comparison to other sectors.

The aim is also to establish new minimum tax rates and harmonise different existing taxes on financial transactions in the EU, aiming to reduce distortions in the bloc’s single market.

"Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect; a fair contribution from the financial sector,” said tax commissioner Algirdas Semeta upon the announcement of the proposal.

The move would aim to capture a slice of 85 percent of transactions between financial institutions, but citizens themselves and non-financial-sector businesses would exempt. Mortgages, bank loans, insurance contracts and other financial activities carried out by individuals or small businesses fall outside the scope of the proposal, the commission said.

The plans have strong support from French President and current chair of the G20 Nicolas Sarkozy, who is likely to raise the EU plan at the next meeting of the world’s leading economies in Cannes on 3 November.

Germany, Spain, Finland, Luxembourg, Belgium, Austria, Hungary, Greece and Portugal are also believed to be committed backers of the move at an EU level.

However the UK, home to the City of London financial district, is implacably opposed and has suggested that it will veto the move.

Britain says it is not opposed in principle, but that it must be imposed at a global level, otherwise banks will simply move out of the EU to more amenable tax climates.

"The government will continue to engage with its international partners on financial transaction taxes and has no objection to them in principle,” said the British treasury. “But any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through. These issues are underlined by the commission's own analysis."

Oxfam, the anti-poverty organisation that has long campaigned for such a ‘Robin Hood Tax’, welcomed the proposals, but said that the funds must be used not merely to shore up EU budgets, but distributed to “help poor countries facing chilling reductions in aid, trade, and investment.”

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