The European Commission wants to make banks pay their debt to society as it starts work on proposals for levies in a sector believed to be largely untouched by taxation.
EU Taxation Commissioner Algirdas Šemeta has long set his sights on the imposition of a financial sector tax. Yesterday (8 March), the commissioner outlined the kinds of taxes the EU executive is looking into and why.
The EU has been alone in voicing the merits of a financial transactions tax (FTT), a tax on high-value deals, and a financial activities tax (FAT), a tax on remuneration and profits. The commissioner yesterday backed these taxes but for different reasons.
An FTT would not only produce high-revenues but also curb high-speed trading, an activity many believe to have caused the financial crisis. However, Šemeta agreed it would be unwise for the EU to have an FTT without its main trading partner, the US, which has long been against the tax.
For that reason, the commissioner said he preferred an FAT as it would allow the EU to move alone without global participation.
The commissioner pointed out that financial services are under-taxed because they are for the most part exempt from VAT, given that it is difficult to calculate their taxable base.
The Commission is currently preparing an in-depth analysis of all options for taxing the financial sector, which it will present by the summer.
Šemeta said he would discuss how to promote a global financial transactions tax at a meeting with the the French G20 Presidency in Paris today. French President Nicolas Sarkozy has previously backed an FTT and has put the issue at the top of its G20 agenda.
According to the Commission's early estimates an FTT could yield global revenues of €60 billion, while a 5% tax on total remuneration and profit would produce €25 billion in the EU alone.
The commissioner's statements come in the wake of the European Parliament's endorsement of an FTT.
Yesterday MEPs supported an FTT by a massive majority as they backed a report by Greek Socialist MEP Ani Podimata.
The Parliament's first attempt to back an FTT was derailed by liberal ALDE and centre-reight European People's Party MEPs just months ago but the Socialists & Democrats retabled the proposals.
Podimata's report on "innovative financing at global and EU level" calls for the introduction of an FTT to raise €200bn a year and to prevent taxpayers from bearing the brunt of bank crises, as is the case in many European countries, especially Ireland.
The resolution calls for more measures to reduce tax evasion and tax fraud, which are currently estimated to cost EU member states about €250 billion per year. MEPs also asked EU ministers to look into a possible worldwide lottery to help fund the fight against hunger.
Industry sources argue that any financial sector tax limited to the borders of the European Union will drive business and growth elsewhere, while MEPs appear to be tired of waiting.
"Are we going to wait until the last dictatorship in the corner of the world says 'yes' to this?" French ALDE MEP Sylvie Goulard asked yesterday.
Multinationals should be prevented from "transferring their profits to countries with the most favourable tax regimes" and should pay their taxes in the countries where they actually generated the profits, says the tax and development resolution. One way to combat harmful tax structures would be to withdraw banking licences from banks that work with tax havens, say MEPs.
Even though this debate has been raging for at least a year industry sources have grown shy of making comments.
The European Savings Bank Group in Brussels declined to comment and said it did not have a position regarding an FTT or an FAT yet.
The European Banking Federation also declined to comment.