Ahead of the EU and Euro-zone Finance Minister Summit held on January 18th and 19th, Luc Frieden, Finance Minister of Luxembourg, called for a new tax to be instated across the whole of the EU. German officials quickly denounced the idea, claiming that the EU already has sufficient funds. The German Ministry also claimed that any created taxes would also serve to further complicate the standing fiscal contribution system.

The current EU fiscal contribution system is based on revenues gathered from customs and import duties, along with a levy on the Gross National Income of each member state. Justifying the need for change Luc Frieden said that while the citizens of any EU member state hold direct ties to their nation’s budget, there is no such connection to the budget of the European Union, and that the funding system should be recreated anew to form such links. He claims that an EU-wide environmental or Carbon Tax would be ideal, though a levy on financial transactions was also suggested.

The EU budget for 2010 is currently set at €122.9 billion. Traditionally nearly 30 percent of this figure is sourced from import tariffs and customs duties, with the rest comprised of levies on nation’s Gross National Income.

Photo by Boyan Yurukov

At the G20 Summit on November 7th, in St. Andrews, Scotland, the UK Prime Minister suggested banks be levied with a tax on their financial transactions. Gordon Brown made it clear that he wishes to see the burden of bank bailouts shifted from the tax payers to the institutions themselves and that this tax was one form of doing that. Other suggestions voiced by the PM included raising insurance premiums for banks to reflect their risk levels, creating bank financed investment pools which will fund bailouts, or instating upfront fees for banks, which will give them a right to request government help.

An early form of the proposed tax was put forward by James Tobin in an effort to create currency stability, after the 1971 announcement that the US Dollar would no longer convert to gold. It was originally created as 1% levy on all foreign currency trades by a bank, though modern discussion has lowered this figure to between 0.1% and 0.25%. James Tobin envisioned that the tax would reign in bank’s speculative activity and bring a higher level of stability to the economy by lowering both fluctuations in currencies and bank risk. The name Tobin has been used on modern incarnations of taxation systems that bare resemblance to the original Tobin Tax, though they might differ slightly in reality.

Quick response to the suggestion came from Timothy Geithner, US Treasury Secretary, who made it clear that the US government would not support the the creation of a Tobin Tax, or any form of “day-to-day financial transaction tax”, though he did not rule out the creation of some form of fiscal incentive to lower bank risk. The view of the US Treasury Secretary was supported by officials from Canada and Russia. Gordon Brown, meanwhile, had the backing of France and Germany.

Following a weekend of negotiations, statements were made on Monday the 19th of October, releasing some indications of Germany’s future tax direction. Much detail concerning the agreements reached and projections created during the negotiations has been kept secret, but clear indication has been made that all involved parties are dedicated to providing tax cuts and attempting to revive Germany’s struggling economy.

Horst Seehofer, Head of the CSU, in an October 19th press conference, said “We will certainly see tax relief in 2011,” without elaborating on the exact scope of the cuts, he simply stated “There will be a cut in income tax”. Comments to press made during the weekend-long negotiations indicated tax cuts will total approximately €20 billion, which is already €5 billion more than promised by the CDU throughout its election campaign, though €15 billion less than hoped for by the FDP. According to the CDU, tax cuts exceeding €20 billion would require corresponding reductions in government spending.

According to Georg Fahrenschon, negotiating member of the CSU, Germany will see corporate tax cuts and inheritance levy reductions totaling €14 billion by the end of 2010. He also indicated that tax relief scheduled for 2011 will be primarily focused at low and middle income earners.

Germany’s 27th of September election saw creation of a Christian Democratic Union (CDP), Christian Social Union (CSU) and FDP coalition. While campaign promises of all parties have maintained that tax cuts would be a priority for the coalition, contentions arisen as to the matter of their funding.

The newly formed coalition will undergo a final round of negotiations regarding the party’s vastly different tax cut promises, throughout the weekend beginning on the 17th of October. CDP has campaigned for tax breaks equivalent to approximately €15 billion, with no specific mention of timing or fund sourcing. Conversely, FDP had previously voiced intentions of €35 billion worth of cuts, with a great emphasis on their rapid implementation. Mixed into the foray of differing opinions, FDP announced on the 13th of October that they would not be willing to even consider any tax cuts funded by an increase in Germany’s debt levels.

All parties involved have admitted that intended cuts could see difficulty materializing, due primarily to Germany’s ailing economy. According to an October 13th statement by the German Finance Ministry, the German government has seen a 7.4% drop in tax revenue collection for the calendar year, compared to the previously forecast 5.8% decline. FDP has already hinted that they might reduce their tax cut intentions accordingly.

The coalition has agreed to a reform and simplification of Germany’s tax brackets. Despite FDP’s intentions, these will be phased in over a four year period. Tax cuts will follow a similar time frame, with moderate cuts being instated in 2011 and more drastic reductions in 2012 and 2013.

The London G20 Summit, held on the 2nd of April this year, heralded an unprecedented wave of Tax Information Exchange Agreement (TIEA). In what was described as “revolutionary” by Angel Gurría, OECD Secretary-General, the number of completed TIEAs has almost doubled since their inception in late 2000.
Since the G20 summit, and subsequent global push for greater tax transparency and compliance, the following 53 agreements have been signed.

United States – Monaco (8 September 2009)
Denmark – Turks & Caicos Islands (7 September 2009)
Netherlands – Antigua & Barbuda (2 September 2009)
Denmark – Gibraltar (2 September 2009)
Denmark – Anguilla (2 September 2009)
Germany – Liechtenstein (2 September 2009)
Netherlands – St Vincent & the Grenadines (1 September 2009)
Denmark – St Vincent & Grenadines (1 September 2009)
Denmark – St Kitts & Nevis (1 September 2009)
Netherlands – St Kitts & Nevis (1 September 2009)
Canada – Netherlands Antilles (29 August 2009)
United Kingdom – Gibraltar (27 August 2009)
Australia – Gibraltar (25 August 2009)
New Zealand – British Virgin Islands (14 August 2009)
New Zealand – Cayman Islands (14 August 2009)
New Zealand – Gibraltar (13 August 2009)
Germany – Gibraltar (13 August 2009)
United Kingdom – Liechtenstein (11 August 2009)
Monaco – San Marino (29 July 2009)
Bermuda – Ireland (28 July 2009)
New Zealand – Isle of Man (27 July 2009)
New Zealand – Jersey (27 July 2009)
United Kingdom – Turks & Caicos (23 July 2009)
Netherlands – Turks & Caicos (22 July 2009)
Netherlands – Anguilla (22 July 2009)
Ireland – Turks & Caicos (22 July 2009)
Ireland – Anguilla (22 July 2009)
New Zealand – Guernsey (21 July 2009)
UK – Anguilla (20 July 2009)
Belgium – Monaco (15 July 2009)
New Zealand – Cook Islands (9 July 2009)
Netherlands – Cayman Islands (8 July 2009)
Germany – Bermuda (3 July 2009)
Ireland – Gibraltar (24 June 2009)
Ireland – Cayman Islands (23 June 2009)
France – British Virgin Islands (17 June 09)
Australia – Jersey (10 June 2009)
The Netherlands – Bermuda (8 June 2009)
Denmark – British Virgin Islands (19 May 2009)
Faroes – British Virgin Islands (19 May 2009)
Finland – British Virgin Islands (19 May 2009)
Greenland – British Virgin Islands (19 May 2009)
Iceland – British Virgin Islands (19 May 2009)
Norway – British Virgin Islands (19 May 2009)
Sweden – British Virgin Islands (19 May 2009)
New Zealand – Bermuda (17 April 2009)
Denmark – Bermuda (16 April 2009)
Faroes – Bermuda (16 April 2009)
Finland – Bermuda (16 April 2009)
Greenland – Bermuda (16 April 2009)
Iceland – Bermuda (16 April 2009)
Norway – Bermuda (16 April 2009)
Sweden – Bermuda (16 April 2009)

Previous to these, 63 agreements had been signed, bringing the total at the 10th of September to 116.