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European Commission wants ‘FAT’ tax for finance companies

The European Commission is to push for a new levy on the profits and income of financial companies

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After conducting a study into financial sector’s contribution to public budgets, the Commission has concluded companies within it should contribute more to government coffers.

In justifying its conclusions, the Commission said the financial sector was a “major cause” of the financial crisis and had subsequently received substantial government support.

It added: “[The financial sector] should therefore properly contribute to the cost of re-building Europe’s economies and bolstering public finances.”

A FAT system is based on the profits and remuneration structure of financial companies. The Commission said it had also considered a financial transactions tax (FTT) for Europe, though has concluded this would be better applied at a global level.

It did not spell this out, but an FTT – which taxes every single financial transaction based on value – applied at a regional or local level could drive financial companies away, to areas where no such tax exists.

The Commission has, however, recommended such a tax should be implemented globally. Creating such a global tax regime, would require unprecedented levels of global cooperation between states and the Commission did not reveal how it hoped this might be achieved. 

The Commission has put the proposals out for public and industry-wide consultation and plans to formally present its findings to the European Council at the end of October and at the G20 Summit in November, with a view to “encouraging international partners to agree on a global approach.”

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 are the right ones to ensure that the financial sector makes a fair contribution to the most pressing EU and global challenges."

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