EC outlines bank tax proposals

Thu, Oct 7, 2010, 01:00

A European Union tax on bank profits and remuneration could raise as much as €25 billion annually for cash-strapped governments to repair their economies, it was revealed today.

The European Commission was outlining its ideas for a Financial Activities Tax (FAT), saying banks were "under taxed" and should contribute to rebuilding economies they damaged.

Tax is a matter for national governments in the EU and it is unclear if any activities tax will be introduced; talks between governments on any EU-wide tax could take years to bear fruit.

The Commission also backed a tax on financial transactions such as stock and bond trades, as called for by Germany and France.

The idea, often referred to as a "Tobin Tax" after the US economist James Tobin who proposed it in the 1970s, should only be introduced on a global basis so as to avoid business shifting elsewhere, EU tax commissioner Algirdas Semeta said.

Mr Semeta said the impact of taxes, along with global moves to beef up bank capital and introduce a possible surcharge on big banks, should be studied for their cumulative impact first.

EU states including Britain and Germany are planning a national levy on bank balance sheets to pay for future bailouts. Mr Semeta said all tax moves should be coordinated to avoid overlaps.

"We have to be cautious and prudent in calibrating a proposal," Mr Semeta told a news conference in Brussels.

EU finance ministers and leaders will discuss Mr Semeta's ideas later this month ahead of "policy initiatives" next year. EU leaders agreed in June the union hould lead efforts to set a global approach for introducing systems for levies and taxes on banks.

Semeta said an activities tax would make the sector more stable, raise more revenue and tax financial services more fairly as they are largely exempt from value added tax.

The International Monetary Fund proposed a FAT earlier this year to the Group of 20 (G20) leading economies which has agreed in principle that banks, and not taxpayers, should pay for rescues in future.

But the G20, after opposition from the United States, shelved the idea of a common global transaction tax, saying each country should decide how it wanted to make banks pay for bailouts.

Last week, ECB president Jean-Claude Trichet warned that going it alone with a transaction tax was not advisable.