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Financial sector taxation: EC consultation

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The European Commission has launched a consultation on a set of policy options including a financial transactions tax and a financial activities tax.

Views are sought as to whether such a new financial sector tax should be introduced and how it should be designed. ‘Any debate on the use of the revenue would be held at a later stage,’ the consultation paper said. Comments are invited by 19 April.

The Commission set out the ‘possible reasons and first ideas’ for additional taxation of the financial sector in a paper published in October 2010. It is now seeking views on policy options to address:

  • ‘substantial public financing support during the crisis, need for fiscal consolidation and possible under-taxation of the financial sector;
  • ‘undesirable behaviours for the society as a whole (systemic risks); and
  • ‘unco-ordinated patchwork of national measures [which] may (i) create incentives for tax-driven relocation either within the EU or outside the EU and distortion of competition and (ii) create situations of unrelieved juridical double taxation or non-taxation.’

The proposals ‘cannot be separated from’ potential changes to the regulatory framework, ‘especially the possible introduction of a bank levy’, the Commission said, recognising that several member states have proposed or already operate national systems of bank levies.

George Osborne told MPs on 11 January that the UK government was ‘looking at the International Monetary Fund's proposed financial activities tax, and [will work] with international partners to secure agreement’.

‘The government believe that a financial transaction tax would need to be applied globally,’  Mark Hoban, the Financial Secretary to the Treasury, said during a House of Commons European Committee debate on financial sector taxation earlier this month.‘Many questions remain unanswered as to whether the model offers a stable and efficient mechanism to raise revenue.’

The European Committee noted that the government ‘continues to explore the costs and benefits of financial activities taxes and will work with international partners to secure agreement’.

It was resolved by seven votes to five that the Committee ‘supports the government’s position that an EU-wide financial transaction tax could lead to the relocation of financial services outside the EU’.