EU Favours 'FAT' Tax On Finance

by Ulrika Lomas, Tax-News.com, Brussels

11 October 2010

The prospect of Europe proceeding unilaterally with a financial transactions tax is becoming increasingly unlikely as European Taxation Commissioner Algirdas Semeta has rejected calls for the introduction of such a tax by Germany, France and Austria, warning that the tax only makes sense at global level, given that the financial sector is very mobile, and emphasizing that this is currently not feasible.

The introduction of a financial transactions tax, imposed on trading in almost all financial products including shares, currency and derivatives, could serve to generate hundreds of billions of euros for European Union (EU) member states. However, it became apparent during the G20 summit meeting in Toronto last year that at the moment such a tax could not be implemented on a global basis, given fierce opposition from Canada and from emerging markets.

Undeterred, Germany and France have continued to call for the tax to be introduced at European level. Yet even here opinion is still very much divided, with the UK vehemently opposed to the idea. There are strong fears that the tax could drive banks out of Europe, thus foiling any plans for additional revenues.

As a possible alternative, Semeta has instead called for the introduction of a so-called financial activity tax (which is being dubbed the 'FAT' tax) within Europe, which would target the profits and remunerations of financial sector companies. According to Semeta, this tax would burden businesses rather than individual participants, and could serve to generate up to EUR25bn a year.

Brussels's clear rejection of a financial transactions tax has dealt a severe blow to the financial plans of Germany’s Finance Minister Wolfgang Schäuble, however, as the coalition government had already stipulated in its savings package that the tax would yield EUR2bn from 2012.

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