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European Union: European Commission Issues Communication on Imposing Taxes in the Financial Sector

(Oct. 21, 2010) The recent financial crisis, which unfolded in Europe and elsewhere, coupled with a variety of other emerging issues including climate change and resource efficiency which entail certain financial obligations, led the three institutions, the European Commission, the European Parliament, and the Council of the European Union to extensively discuss the issue of introducing taxes and levies in the financial sector in order to increase revenue. On October 7, 2010, the European Commission adopted a Communication on Taxation of the Financial Sector, which outlines its main proposals for two instruments: a) a Financial Transactions Tax (FTT); and b) a Financial Activities Tax (FAT). (Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, Taxation of the Financial Sector, COM(2010) 549/5 (Oct. 7, 2010),

The Commission views favorably the option of the FTT and envisages that it would operate at the global level. The tax would be imposed on every transaction based on its transaction value and could result in tremendous revenues to assist in the pursuit of important global policies.

The FAT would be imposed on the profits and remunerations of the financial sector companies within the EU. Consequently, it would tax the corporations and not each actor involved in the financial transaction, as it would be the case with FTT. (Id.)

The Commission will present this Communication to the EU finance ministers on October 19 and to the European Council at the end of October. In addition, the Commission will present its position on this issue at the next G20 meeting in November.

The Commissioner for Taxation, Customs, Anti-Fraud and Audit, Algirdas Šemeta, stated “[t]here 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.” (Id.)