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Full Steam Ahead For German Bank Tax

by Ulrika Lomas,, Brussels

25 August 2010

Determined to press ahead swiftly with plans to introduce a compulsory bank levy in Germany, the German cabinet is due to meet shortly to discuss its long awaited restructuring law.

According to the finance ministry, the coalition government aims to adopt the plans before the end of the year, in a bid to curb risk-taking by the country’s banks and to be able to provide for future crises in the financial markets without recourse to taxpayer contributions.

During the course of the meeting, the government aims to firm up the precise details of the proposed bank levy, due to be imposed annually on all credit institutions headquartered in Germany on September 30. Insurers and hedge funds will remain exempt from the tax.

Under the current proposals, revenues from the tax will flow directly into a restructuring fund designed to support banks in difficulty. The amount of the annual levy imposed on individual institutions will be determined by volume of business and exposure to the financial markets. The basis for the calculation of the tax will be set by decree. The tax, which is non-deductible as a business expense, will only be imposed on profitable organizations up to a limit of 15% of a bank’s annual profits. Any banks experiencing losses will be required to pay a minimum amount.

Based on profits from 2006 (pre-crisis) and using the latest methods of calculation, the tax would serve to generate in the region of EUR1.3bn annually. Using this scenario, the lion’s share of the burden would have been borne by private banks (EUR690m), with state banks providing around EUR319m, savings banks approximately EUR60m and mutual banks EUR27m.

The restructuring law also provides for the introduction of a procedure for the orderly failure of a bank, enabling the state in future to dismantle an ailing bank, to assume control of strategic assets, using money from the fund as support, and to liquidate the rest.

TAGS: tax | business | law | banking | hedge funds | Germany

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