In June 2010 the European Council agreed that Member States should introduce a system of levies and taxes on financial institutions to ensure fair burden-sharing and to set incentives to contain systemic risk. It was further agreed that such levies or taxes should be part of a credible resolution framework and that work was required on their main features, level playing field issues and the cumulative impacts of various regulatory measures. The European Council invited the Council and the Commission to take this work forward and to report back in October 2010. The Council at the end of October 2010 issued a report on the subject stating that in view of the need to better anticipate and defray the cost of a possible crisis, there was now broad agreement at the international level that the financial sector should make a ‘fair and substantial’ contribution towards paying for any burdens associated with government interventions, where they occur, to repair the financial system or fund resolutions. It considered that a range of policy options could be pursued, including levies and taxes and that although not mutually exclusive, their impact on the banking sector needed to be considered together with other measures currently in the process of being introduced, in particular the new capital and liquidity requirements, as well as measures aiming at adequate funding of Deposit Guarantee Schemes.
On bank levies, the Council’s report acknowledged the fact that whilst there is a growing consensus in the EU on the base and scope for such levies, this is not the case at this stage on either their objectives or on the allocation of the proceeds of such levies. Looking at next steps, the report proposes that given that Member States are already now moving ahead by introducing country specific systems of levies with differing parameters, a two-step process should be pursued: first, problems of double charging and co-ordination should be addressed, and second, a debate on the more structural aspects of levies linked to the setting up of crisis resolution structures should continue once the Commission has presented its proposal in respect of an EU framework for crisis management.
On financial taxes, the report argues that a Financial Transaction Tax (a “FTT”) might contribute to ensuring that the financial sector makes a fair and substantial contribution to public finances provided it is properly calibrated and applied globally. However, it accepts that reaching agreement in this respect at the global level may be difficult and, considering the global nature of financial markets, applying such a tax at the EU level alone may result in significant distortion of competition and any relocation of financial activity within the global financial system resulting in reduced fiscal revenues. The report therefore recommended further careful consideration of the options in that respect, and in order to carry this debate forward at the EU and international level, a comprehensive analysis should be carried out by tax experts on what the conditions would be for implementing such a tax. The report is even vaguer in respect of a Financial Activity Tax (a “FAT”), noting merely that these taxes already exist in some Member States in a broad variety of forms in order to allow specific taxation of the financial sector.
On bank levies the Council has now invited the Economic and Financial Committee to look into the possibilities for EU-wide and bilateral solutions to ensure the necessary co-ordination between the different national schemes currently in place to avoid double charging of EU bank entities. The Committee is to report back to the European Council in December 2010.
On financial taxes the Council has taken note of the Commission communication on the taxation of the financial sector of 7 October 2010 and of the intention of its Taxation Policy Group to examine different options. It concludes (again rather vaguely) that a Council High Level Working Party should examine the options and prepare conclusions, where appropriate.