Bankers’ bonus tax hits first hurdle

The City of London

The City of London

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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An ad hoc high-level group on financial supervision was established by the European Commission in October 2008 to issue proposals on financial supervision. 

The panel, led by Jacques de Larosière, formerly managing director of the International Monetary Fund, presented its report in February 2009. Last May, the Commission fully endorsed the panel's report, proposing a draft plan aimed at strengthening the European Central Bank's (ECB) macro-supervision powers to prevent systemic risks, and at enhancing national cooperation regarding micro-supervision of cross-border financial groups. 

EU rules on compensation are enshrined in proposed amendments to the existing Capital Requirements Directive. According to the de Larosière report, compensation schemes should be based on the principles that bonuses reflect actual performance and should not be guaranteed, and that the assessment of bonuses should be set in a multi-year framework, spreading bonus payments over the business cycle. 

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