Banks and insurance companies would consolidate faster if outdated European Union tax rules were changed, EU Tax Commissioner Laszlo Kovacs said today.
Financial firms cannot charge Vat on the services they provide, even though they have to pay tax on services they themselves purchase, creating a fiscal mismatch.
Banks, insurance companies and fund managers are not allowed to reclaim Vat paid either, a rule that the EU Commission sees as obsolete.
When the rules were devised 30 years ago, it was technically too difficult to levy Vat, a broad sales tax, on financial services, but the commission says this is no longer the case.
"We can expect that consolidation . . . will continue. I want to make sure that the unintended consequences of outdated Vat provisions do not hinder this process," Mr Kovacs told a hearing on modernising tax rules for financial firms.
He said current Vat rules favour third country operators, for example, in the way outsourcing opportunities are treated. "European financial services industries must function as global players and I would want to be assured that any reform of Vat ensures that the European tax system does not place them at any competitive disadvantage," Mr Kovacs said.
"It is clear that it will not be possible to maintain total budgetary neutrality if a viable solution to the Vat problems is to be found," Mr Kovacs said.
"Without reform, however, overall economic developments and enforced changes brought about by the (European) Court of Justice will also pose a threat to state revenues," he added.