On Friday, the European Commission (EC) issued its assessment of proposals for two new sets of taxes on the financial sector: a financial activities tax (FAT) and a tax on financial transactions (FTT). The assessment was performed following the European Council’s June 17 endorsement of the adoption of “systems of levies and taxes on financial institutions to ensure fair burden-sharing and to set incentives to contain systemic risk.” Accompanying the EC’s assessment were a set of frequently asked questions and a staff working document.
According to the EC, the taxes would be a way to ensure that banks and other financial services companies, which were instrumental in the global financial crisis and received substantial government support over the last several years, “pay their fair share of the cost of recovery.” In addition, the revenues generated by the taxes would force the financial sector, which the EC said is traditionally “under-taxed compared to other segments of the economy,” to make a “fair contribution to public budgets.” On balance, the EC concludes that a FAT could be implemented unilaterally in the EU, which it said “could deal with the current VAT exemption of the financial sector and raise substantial revenues.” However, the EC notes that, “given the innovative nature of this tax there is a need for further technical work on how it might be implemented.”
The EC concludes that a global FTT would provide another source of revenues, which the EC said could be used to “fund global policies like development aid and the fight against climate change.” Although an FTT could be considered at the EU level only, for an FTT “to work effectively and fairly, participating countries should try to come to an agreement on global financing tools that can be acceptable to all.”
The EC will carry out an assessment of the impact such taxes would have on the economy. The European Union governments will consider both proposed taxes before the next G20 summit in Seoul, South Korea, this November