President Sarkozy of France is prepared to do ‘everything possible’ to get the G20 to move towards the adoption of a financial transaction tax, The Times reported ahead of this week’s G20 summit in Cannes.
The Franco-German drive to introduce the tax is ‘a red rag to the City and an embarrassment to the [UK] government’, the paper reported, quoting one of Mr Sarkozy’s ‘most influential’ aides as saying that the President would place the levy at the heart of the summit’s agenda.
‘The EC has recently presented a legislative proposal for a financial transaction tax in the EU. The introduction of a global financial transaction tax should be explored and developed further,’ the European Commission President and the President of the European Council said in a joint letter to the G20.
The Financial Times reported that Wolfgang Schäuble, Germany’s Finance Minister, wanted the EU to ‘take the global lead in introducing a financial transaction tax to curb speculative trading’.
Schäuble told the FT that if the UK blocked agreement on such a tax in the full European Union, the eurozone ‘should press ahead on its own’.
He and Angela Merkel, the German Chancellor, were ‘convinced’ that such a tax would discourage ‘the most extreme forms of speculative trading’ in the financial markets.
Earlier, the paper reported that Boris Johnson, London’s mayor, had written to EC President José Manuel Barroso calling for the proposed Europe-wide tax to be dropped ‘at the earliest opportunity’.
Johnson was ‘writing to protest because he had “a legal duty to promote the city’s economic and social development and hence a responsibility to safeguard the health of the financial services sector”’.
The UK government is opposed to a Europe-wide tax but the Chancellor, George Osborne, has said he is not against a financial transaction tax in principle. ‘If we can get global agreement, with the United States, China and others, on a world financial transaction tax, all well and good, although I do not think that is terribly likely,’ he told MPs last month.
The financial sector is ‘under-taxed’, the EC declared as it published its proposal last month.
It estimated that the sector ‘enjoys a tax advantage of approximately €18 billion a year because of VAT exemption on financial services’.
Colin Graham at PwC said at the time that he suspected that ‘further analysis could show the VAT exemption provides no tax advantage whatsoever’.
New research by PwC and Professor Ben Lockwood of the University of Warwick shows that European banks’ VAT exemption ‘does not lead to a tax advantage for the banking sector’, the firm has now announced.
The report concludes that ‘if bank services were subject to VAT – in place of the current exemption system – this would not lead to any significant increase in EU VAT revenue’.
The authors noted that, in an appendix to the EC’s formal proposal, the Commission said its estimates were ‘very rough’ and ‘should be interpreted with caution’.
PwC said: ‘Under the current VAT exemption system, banks do not charge their customers VAT, but in return they cannot recover VAT on costs they incur. In the report, this irrecoverable VAT is estimated to amount to up to €33bn per annum. VAT is meant to be a tax on final consumers and the VAT exemption for banks moves away from this principle by imposing the irrecoverable VAT on the banks themselves. One reason for this is the difficulty of imposing VAT on the value added by banks and charging customers.
‘If EU banking services were to become subject to VAT, banks would be able to fully recover the VAT on their costs and EU government revenues from this source would decrease. While banks’ customers would be charged VAT, business customers would recover this so that government VAT revenues would only increase by the amount of VAT on non-business (or non-VAT registered) services to customers of banks.
'The report finds it unlikely that the VAT raised from consumers would be significantly higher than the tax governments would lose because banks would recover VAT on their costs. Indeed, on some analysis, overall EU VAT tax revenues could even decrease as a result of imposing VAT on banking services.’
Eleven trade associations representing users and providers of financial services wrote to the Chancellor to highlight ‘serious concerns’ over the proposed Europe-wide tax. The signatories included the British Bankers’ Association, the Association of British Insurers and the Association of Private Client Investment Managers and Stockbrokers.
The focus of the UK’s opposition so far had been on the risk of business migration and ‘the subsequent harm this could cause to London as a global financial centre, and hence to the UK economy’, the authors said.
But they noted that the EC’s impact assessment highlighted some broader economic concerns.
‘The Commission expects only a modest adverse impact on GDP, yet if the assumptions underpinning this calculation are incorrect – and past experience with similar taxes suggests that at least some of them may be – then the impact assessment itself acknowledges that reduction in GDP could be multiples higher.’
They added: ‘The proposed FTT will increase various costs within the financial system and impede the efficient operation of markets which are crucial not only for direct market participants, but for the vast array of end users who benefit from an efficient financial system.’
Such costs had been underestimated or ignored by supporters of an FTT, they claimed.
President Sarkozy of France is prepared to do ‘everything possible’ to get the G20 to move towards the adoption of a financial transaction tax, The Times reported ahead of this week’s G20 summit in Cannes.
The Franco-German drive to introduce the tax is ‘a red rag to the City and an embarrassment to the [UK] government’, the paper reported, quoting one of Mr Sarkozy’s ‘most influential’ aides as saying that the President would place the levy at the heart of the summit’s agenda.
‘The EC has recently presented a legislative proposal for a financial transaction tax in the EU. The introduction of a global financial transaction tax should be explored and developed further,’ the European Commission President and the President of the European Council said in a joint letter to the G20.
The Financial Times reported that Wolfgang Schäuble, Germany’s Finance Minister, wanted the EU to ‘take the global lead in introducing a financial transaction tax to curb speculative trading’.
Schäuble told the FT that if the UK blocked agreement on such a tax in the full European Union, the eurozone ‘should press ahead on its own’.
He and Angela Merkel, the German Chancellor, were ‘convinced’ that such a tax would discourage ‘the most extreme forms of speculative trading’ in the financial markets.
Earlier, the paper reported that Boris Johnson, London’s mayor, had written to EC President José Manuel Barroso calling for the proposed Europe-wide tax to be dropped ‘at the earliest opportunity’.
Johnson was ‘writing to protest because he had “a legal duty to promote the city’s economic and social development and hence a responsibility to safeguard the health of the financial services sector”’.
The UK government is opposed to a Europe-wide tax but the Chancellor, George Osborne, has said he is not against a financial transaction tax in principle. ‘If we can get global agreement, with the United States, China and others, on a world financial transaction tax, all well and good, although I do not think that is terribly likely,’ he told MPs last month.
The financial sector is ‘under-taxed’, the EC declared as it published its proposal last month.
It estimated that the sector ‘enjoys a tax advantage of approximately €18 billion a year because of VAT exemption on financial services’.
Colin Graham at PwC said at the time that he suspected that ‘further analysis could show the VAT exemption provides no tax advantage whatsoever’.
New research by PwC and Professor Ben Lockwood of the University of Warwick shows that European banks’ VAT exemption ‘does not lead to a tax advantage for the banking sector’, the firm has now announced.
The report concludes that ‘if bank services were subject to VAT – in place of the current exemption system – this would not lead to any significant increase in EU VAT revenue’.
The authors noted that, in an appendix to the EC’s formal proposal, the Commission said its estimates were ‘very rough’ and ‘should be interpreted with caution’.
PwC said: ‘Under the current VAT exemption system, banks do not charge their customers VAT, but in return they cannot recover VAT on costs they incur. In the report, this irrecoverable VAT is estimated to amount to up to €33bn per annum. VAT is meant to be a tax on final consumers and the VAT exemption for banks moves away from this principle by imposing the irrecoverable VAT on the banks themselves. One reason for this is the difficulty of imposing VAT on the value added by banks and charging customers.
‘If EU banking services were to become subject to VAT, banks would be able to fully recover the VAT on their costs and EU government revenues from this source would decrease. While banks’ customers would be charged VAT, business customers would recover this so that government VAT revenues would only increase by the amount of VAT on non-business (or non-VAT registered) services to customers of banks.
'The report finds it unlikely that the VAT raised from consumers would be significantly higher than the tax governments would lose because banks would recover VAT on their costs. Indeed, on some analysis, overall EU VAT tax revenues could even decrease as a result of imposing VAT on banking services.’
Eleven trade associations representing users and providers of financial services wrote to the Chancellor to highlight ‘serious concerns’ over the proposed Europe-wide tax. The signatories included the British Bankers’ Association, the Association of British Insurers and the Association of Private Client Investment Managers and Stockbrokers.
The focus of the UK’s opposition so far had been on the risk of business migration and ‘the subsequent harm this could cause to London as a global financial centre, and hence to the UK economy’, the authors said.
But they noted that the EC’s impact assessment highlighted some broader economic concerns.
‘The Commission expects only a modest adverse impact on GDP, yet if the assumptions underpinning this calculation are incorrect – and past experience with similar taxes suggests that at least some of them may be – then the impact assessment itself acknowledges that reduction in GDP could be multiples higher.’
They added: ‘The proposed FTT will increase various costs within the financial system and impede the efficient operation of markets which are crucial not only for direct market participants, but for the vast array of end users who benefit from an efficient financial system.’
Such costs had been underestimated or ignored by supporters of an FTT, they claimed.
