TAX NEWS - JUNE 2010

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Canada Tax: Canada sways G20 to rethink bank tax

Canada has won a key battle to block a global bank tax from being applied uniformly on all members of the Group of 20 countries.

Finance ministers meeting in Busan, South Korea, Saturday said in a communique that each country will be free to choose its own way of dealing with the issue.

The tax is favoured by several large European countries and the United States as a way to create a fund that would be dipped into if important financial institutions ever faced failure in the future.

But Canada has been lobbying world leaders for months that countries that didn't need to bail out their financial institutions during the recent crisis shouldn't have to punish their banks for what others did.

"It was apparent that most G20 members do not support the concept of a universal levy," said Finance Minister Jim Flaherty at the conclusion of the meeting.

"What there is agreement about is the following principle -- to the extent that a financial institution contributes to a financial crisis, then the financial institution should bear the cost of that contribution and not taxpayers.

"At the end of the day, different countries will choose different ways of reaching the goals ... but there is no agreement to proceed with an ex-ante tax."

The United Kingdom, Germany, France and the United States have been most adamant in pressing for a bank levy against financial institutions, in part because they were forced to use hundreds of billions of taxpayer dollars to rescue them in an effort to stave off an ever more punishing global recession.

The proponents want the levy to apply in all jurisdictions because otherwise banks in nontax countries will gain a competitive edge.

Earlier, Prime Minister Stephen Harper appeared to win no concessions in talks with British and French leaders. Flaherty had said most countries in the G20 did not need to use taxpayer dollars to rescue banks and were siding with Canada on the issue.
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