TAX NEWS - June 2010

EU split over bank levy or transaction tax

Brussels - European Union leaders were at odds on Thursday over whether to push for an international tax on financial transactions or a levy on banks as the best way to curb market risk-taking as they met for their summit in Brussels.

The EU is keen to take the lead in the international debate on how to make banks take their share of the responsibility for the 2008 financial crash, ahead of G8 and G20 summits next week.

'Germany and France are very much in favour of making even more sure that those who caused the crisis pay,' German Chancellor Angela Merkel said as she arrived at the meeting.

A draft summit statement says the EU will 'lead efforts to set a global approach for introducing a levy on financial institutions with a view to maintaining a world-wide level playing field,' and will 'strongly defend' the idea at the G8 and G20 meetings.

But not all member states are happy with the draft.

'We have a problem with the text,' Czech Prime Minister Jan Fischer said. Diplomats say Prague wants to soften the EU's stance, asking for it to consider a bank levy rather than commit to it.

Luxembourg's premier, Jean-Claude Juncker, meanwhile, called for an international tax on financial transactions as a way of making banks pay for the crisis.

'I think we need a financial transaction tax. It cannot be that international banks - financial market actors - don't contribute financially to the results of the crisis,' said Juncker, whose influence on EU economic policy is enhanced by his chairmanship of the Eurogroup, the panel of euro area finance ministers.

But that idea, in turn, met with little support from Sweden's Prime Minister Fredrik Reinfeldt. Sweden recently introduced a levy on bank risk-taking in order to fund future rescues, and in the 1980s brought in a short-lived tax on transactions, making Reinfeldt an influential commentator on both issues.

The transaction tax 'didn't work, because the idea with this tax is that everyone should have the same level, but what very often happens is that many countries will say, 'No, we will not have such a tax,' ... So in Sweden, capital left Stockholm and went somewhere else,' Reinfeldt told the German Press Agency dpa.

'We don't think that that is the solution to the problems we have,' he said.

The Swedish levy, which imposes a fee on banks depending on the risk exposure of their balance sheets, did not cause a flight of capital from Stockholm, he said.