The European Commission has set out its ideas for the future taxation of the financial sector, which campaigners welcomed as a significant move toward a 'Robin Hood Tax'.
Saying that it was working on the basis that the financial sector needs to make a fair contribution to public finances, and that governments urgently need new sources of revenue in the current economic climate, the Commission has put forward a two-pronged approach.
At global level, the Commission supports the idea of a Financial Transactions Tax (FTT), which could help fund international challenges such as development or climate change. At EU level, the Commission recommends that a Financial Activities Tax (FAT) would be the preferable option.
The Commission says that if carefully designed and implemented, an EU FAT could generate significant revenues and help to ensure greater stability of financial markets, without posing undue risk to EU competitiveness.
The Commission will present these ideas to the European Council at the end of October and to the G20 Summit in November.
Algirdas Šemeta, Commissioner for Taxation, Customs, Anti-fraud and Audit, said: "There are good reasons for taxing the financial sector, and feasible ways to do so. I believe that the ideas that the Commission has put forward today are the right ones to ensure that the financial sector makes a fair contribution to the most pressing EU and global challenges."
The Commission supports the idea of a Financial Transaction Tax (FTT) at global level, and will continue to work for this within the G20. If ambitious global objectives are to be achieved, in areas such as development aid and climate change, international partners will need to agree on global financing tools the Commission says.
A Financial Transactions Tax would tax every transaction based on its value, resulting in substantial revenues. The Commission believes that a well-implemented, internationally-applied financial transaction tax could be an attractive way of raising the necessary funds for important global policies.
At European level, the Communication suggests that a Financial Activities Tax (FAT) should be considered. A Financial Activities Tax would target the profits and remunerations of financial sector companies. In this way, it would tax the corporations, rather than each actor involved in a financial transaction (as is the case with the FTT). Following in-depth analysis of possible options for taxing the financial sector, the Commission is of the opinion that the FAT would be the best instrument for an appropriate taxation of the financial sector and the need to raise new revenues in the EU.
In order to assess whether a new financial sector tax could be fully justified, the Commission examined the current contribution of this sector to public budgets. It concluded that that there were good grounds for introducing the financial sector taxes which it has put forward.
As the financial sector was a major cause of the financial crisis and received substantial government support, it should properly contribute to the cost of re-building Europe's economies and bolstering public finances it says. Secondly, a corrective bank tax could complement the essential regulatory measures (including the bank levy and resolution fund) designed to enhance the efficiency of financial markets and to reduce their volatility.
Given that the financial sector is exempt from value added tax (VAT) in the EU, such tax would ensure this sector is not under-taxed compared to others, it also suggested. A new tax could help to ensure that the financial sector makes a fairer and more substantial contribution to public finances, would provide additional sources of revenue and would help create a stable and more efficient financial sector.
Responding to the European Commission's announcement, Max Lawson, a spokesperson for the Robin Hood Tax campaign, said: "The EC has responded to the public mood and has taken a significant step towards a Robin Hood Tax. Taxing big finance makes sense: it can curb dangerous casino capitalism whilst raising tens of billions to pay down our deficit and provide much needed money for the fight against poverty and climate change here in Europe and around the world.
"Today's FAT tax proposal could mean as much as £4 billion for the UK. We think they can go further - generating up to £20 billion from the sector that sent our deficit through the roof. But today the EC took a step in the right direction, putting people over profit.
"The EC is wrong to think an FTT needs to be global. The IMF has shown how countries can implement them without waiting for global agreement. In fact, we have a very successful transaction tax on shares in the UK already."