Rumors of New Bank Tax in EU

January 13, 2011 International Tax CooperationTaxation in EU

IrrläuferLeaked documents have revealed that EU finance ministers were being urged to consider approving a new levy on bank’s assets, in order to support a new international financial stability fund.

On January 10th a report was presented to lower-level finance ministers across the European Union (EU), outlining several proposed measures for the expansion of the EU-wide European Stability Mechanism (ESM). The report was intended to remain confidential but was leaked to the media within days of its release.

Among its several proposals, the report outlines a potential new tax on banks operating within the 27 member nations of the European Union. It was suggested that banks should face a 0.2 percent annual tax on their asset balances. It is expected that at the outlined rate the approximately EUR 50 billion in tax revenues would be raised annually. All the arising revenues will be deposited into a fund which will be utilized by the ESM, as a monetary reserve for any future financial break downs faced by the EU. The document emphasized the need for the ESM to hold adequate monetary reserves, refereeing to the potential EUR 50 billion as a “critical mass of paid-in capital.” The document went on to say that a “… sovereign crisis can affect very negatively borrowing conditions of the financial sector,” and that, “… it is in the interest of the financial sector to contribute to the existence of an ultimate safety net, which protects the capacity of public authorities to rescue them.”

The ESM was approved by EU members late in 2010, as a replacement for the current European Financial Stability Facility (EFSF). The new Mechanism will operate much the same as the EFSF, although with a greater emphasis on providing debt sustainability tools for nations and banks, along with expanding concentrated efforts to preventing regional financial crises, such as those seen recently in Greece and Ireland.

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