German Cabinet Adopts Bank Levy

by Ulrika Lomas, Tax-News.com, Brussels

30 August 2010

The German cabinet has adopted the coalition government’s draft restructuring law (Restrukturierungsgesetz), providing crucially for the introduction of a bank levy in Germany.

The law pertains to cornerstone measures for financial market regulation, adopted by the cabinet on March 31, and contains the following key provisions:

• A law providing for the reorganization of credit institutes;
• The introduction of instruments designed to overcome future crises among systemically important credit institutes;
• A law establishing a restructuring fund for credit institutes;
• An extension of the limitation period for the liability of listed companies and credit institutes.

Anchored in the new restructuring law is a so-called reorganizations procedure designed to support banks in future in their autonomous recovery and reorganization. The law also facilitates the transfer of systemically important parts of a company to a third party to protect financial market stability.

To fund this procedure, a restructuring fund is to be set up, financed by contributions from the country’s banking sector. Consequently, an annual banking levy will be imposed on all credit institutes in Germany, adjusted according to risk exposure and to the level of interconnectivity of a bank. According to the German finance ministry, the levy is designed to have a steering effect and to reduce systemic risk within the financial sector. The tax is not deductible as a business expense.

Announcing the adoption of the restructuring law, the finance ministry emphasizes the need to change the existing legal and institutional framework in order to be able to meet future crises in a preventative way. The aim of the restructuring law, it adds, is to ensure that a failing systemically important bank is successfully managed without risk to the financial system.

The bill requires the approval of the German parliament.

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