Divergent proposals on a bank levy in France, Germany, the UK and Hungary risk creating distortions to the EU's internal market, according to an internal document from the Commission, which will be discussed by finance ministers at their meeting today (7 September).
"A common EU-wide approach is needed to minimise distortions to the internal market, and avoid any potential double imposition of levies on banks," reads the paper.
Tax distortions, double taxation and the different tax bases used are all sources of concern for the Commission, which is studying the evolution of proposals in the bloc.
Double taxation
The German and UK finance ministers are due to discuss a recent spat about the prospect of German banks facing a levy both at home and in London (EurActiv 25/08/10).
The Commission paper reiterates that concern and calls on member states to devise a common approach in today's multilateral talks.
"A particular concern is that banks operating across EU borders could be subject to double or even multiple impositions," the paper says.
An EU source yesterday defended the UK's double-edged approach, saying that foreign subsidiaries were also a source of systemic risk for the economy.
The paper also criticises member states for devising levies that hit different parts of banks' books – some target assets and liabilities, some have whittled it down to different kinds of liabilities and some exclude depositors.
Size of levy
The varying size of the levy between countries would also create an uneven playing field for banks, the paper warns.
"For example in the case of one member state, the amount levied on banks will exceed by four times the amounts levied elsewhere in relative terms."
According to the UK's recent budget, the levy will be set at 0.04% in the first year, generating about £1.15bn, while a concurrent proposal in Hungary would set a levy at 0.6% of a company's assets to plug the country's widening budget deficit.
"The Hungarian bank tax caused a storm in the global business community [...] There's fear that if Hungary were to introduce a bank tax of this magnitude, then Germany, France, the UK, Romania and Slovakia would follow suit,'' Hungarian Economy Minister György Matolcsy said in July (EurActiv 06/07/10).
Banks or budgets
What the proceeds of a bank levy would be used for has also been a source of disagreement, with the UK and Hungary wanting to feed their budgets with the tax revenue and others, like Germany, insisting that revenues are used to prop up banks.
In a May proposal, the EU executive insisted the revenue should feed a private sector fund to ensure that taxpayers never have to fund a bank rescue again.
The internal paper criticises countries that want to direct the proceeds to their budgets because doing so would "handicap authorities' ability to coordinate intervention in a cross-border case".
EU sources say today's discussions on a bank levy will trump those on a less endorsed proposal for a financial transaction tax (FTT), or Tobin Tax as it is more widely known.
Ministers will also discuss a recent political agreement on the shape of new EU financial watchdogs, which is due for a vote in the European Parliament in two weeks' time (EurActiv 03/09/10).
