Franco-British plans to introduce a one-off supertax on bankers' bonuses hit a snag when the asset management sector won exemption from a draft UK law after threatening to leave the country. A related European law could face similar difficulties.
Britain and France both announced plans for a one-off 50% tax on bankers' bonuses above £25,000 (EurActiv 11/12/09).
But the UK's big hitters have shown they will not accept the tax without a fight and say they will leave the country if the government introduces it.
The UK's asset management industry secured immunity from the planned tax on 24 December, according to the Investment Management Association (IMA), which represents the UK's £3 trillion asset management industry.
Richard Saunders, chief executive of the IMA, said a revision by the country's Revenue and Customs (HMRC) authority "clearly indicates that the final legislation will ensure that asset and fund management firms will not be liable to pay this tax".
Investment banks threaten to leave London
Morgan Chase has joined investment bank JP Morgan in threatening to move its European operations outside of the City of London if the tax comes into force.
Yesterday (5 December) London's mayor, Boris Johnson, weighed into the debate by saying that the industry's fury should be a wake-up call to the country's leaders to drop the tax.
However, analysts argue that the banks' threats are easier said than done as relocations are costly and will not happen overnight.
"It would take years for a bank to move its human capital and infrastructure to another location," argues Karel Lannoo from the Brussels-based Centre for European Policy Studies (CEPS).
Bonus curbs losing currency at EU level
Meanwhile, in Brussels, plans to adopt a pan-European law to curb bankers' remuneration are under scrutiny at the EU Council of Ministers and the European Parliament.
But some policymakers argue the plan will lose currency once national governments start feeling the extra tax revenues from banks that relocate to their countries.
Syed Kamall, a Conservative MEP for London, argues that the German tax authorities will be "the grateful recipients of the extra tax revenue coming from well-paid bankers relocating to Germany".
For Kamall, the prospect of a bonus tax in Britain and France has created even less incentive to approve EU rules on bankers' bonuses that have been written into a proposed revision of the EU's Capital Requirements Directive.
"Angela Merkel now has less incentive to tighten regulations on pay using the Capital Requirements Directive," argues Kamall.
Germany's coalition government is divided on the issue. The liberal FDP argues that a move to tax bonuses would be populist and the Christian Socialist Union (CSU) has said it would support a one-off tax on a selection of institutions (EurActiv.de 28/12/09).
In addition, Lannoo from CEPS argues that it would be impossible for supervisors to monitor data sheets on the pay of hundreds of thousands of employees.
(With reporting from EurActiv.fr and EurActiv.de)
Wolfgang Hermann, a trade union representative for German staff at Deutsche Bank's UK operations, is lobbying the Treasury to give his affiliates immunity from the British tax.
"The British tax can't be at the expense of German employees," Hermann said.
Though there has been less reaction from French banks to the bonus tax, the general secretary of the French Banking Federation (FBF), Ariane Obolensky, said before Christmas that France should not introduce a bonus tax because its industry was faring better than Britain's banks.
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