French Bank Tax To Generate EUR504m In 2011

by Ulrika Lomas, Tax-News.com, Brussels

27 September 2010

French Finance Minister Christine Lagarde has confirmed that the tax on banks in France is due to generate in the region of EUR504m in additional revenues for the state in 2011, increasing to EUR555m in 2012 and to EUR810m in 2013.

Due to be imposed on around 20 banks from next year, including credit institutions and investment companies, the tax is designed to prevent excessive risk taking and to therefore avert a new crisis. The levy will not apply to hedge funds.

Finance Minister Lagarde has revealed that the tax, which will be levied on both French banks and on foreign banks active in France, will be deductible from corporate taxation, and has confirmed that negotiations on a bilateral double taxation agreement with the UK are currently ongoing.

According to Lagarde, the principle of the tax is clear: the more a bank takes risks, the more it will be taxed. Based on the risk assets of a bank, the tax is set to increase in the same measure as the capital requirements provided for by the Basel committee, the minister added.

In addition to the bank tax, Lagarde has announced a rise in the participation of financial institutions to the deposit guarantee fund of EUR90m a year over three years. There will also be EUR125m to pay in supervision fees.

France aims to use the product of the new tax to contribute towards reducing the country’s public deficit. The government aims to reduce the deficit from 8% of gross domestic product this year to 3% in 2013. Lagarde has nevertheless emphasized that the aim of the tax is not to generate additional revenues for the state, but to encourage financial institutions to control their risk taking.

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