European Union experts reached a gloomy prognosis on Tuesday for a tax on the financial sector championed by France and Germany. In a 40-page document prepared for national officials in Brussels and seen by AFP, the European Commission examines ideas for taxes either on financial transactions, described as a "turnover tax," or on financial activity, targeting "profits and remuneration."
"Given the complexity of some financial transactions, the impact of a transaction tax and the feasibility of such a tax remain largely uncertain in many cases," the document argues. "Given this complexity, there may be considerable unintended effects and the possibilities of circumvention of the tax increase with the complexity of the operation."
It said the dangers would include tax avoidance, companies fleeing to non-EU markets such as Switzerland and increased administration costs, with the bill ultimately being passed back to consumers and small businesses. A spokeswoman said the "working document" would provide a "basis for discussions" between EU finance ministers meeting on Monday and Tuesday in Brussels, and that taxation commissioner Algirdas Semeta is "neither for nor against" Franco-German efforts to get the proposal accepted.
Britain is traditionally hostile to moves against its financial sector, easily Europe's biggest and most lucrative, and with a new Conservative-Liberal Democrat government in charge, London can be expected once more to jealously guard its own taxation powers.
EU leaders ordered an exploration of different tax ideas following a public backlash against banks that were bailed out by taxpayers who suffered heavily in recession. They have failed to gather support for co-ordinated action at the Group of 20 major developed and developing economies.
The idea was to make financial markets less volatile and curb excessive risk-taking while making banks, insurers and others pay more into public finances, especially as state measures to fend off the worst of the economic downturn have to be withdrawn.
The plans are separate from existing moves to introduce a network of national bank levies for "financing future resolutions of failing banks," as well as bonus taxes that some members including Britain have already brought in. However, the experts repeatedly warn in the document that revenue estimates "should be interpreted with great caution."
Citing Austrian data based on 2006 figures, the commission said that a transaction tax at the rate of 0.1 percent could raise as much as 467 billion dollars (372 billion euros) in Europe "depending on the assumptions of the decrease in trading volume." But problems in taxing derivatives trading - where a "notional" value today and an "actual" value at handover could vary widely - mean that when this class of asset is removed, the sums could fall as low as 18 billion euros, using 2008 figures, or five billion euros in the case of an activity-based approach.
The International Monetary Fund has proposed a tax on activities as preferable, reflecting actual circumstances in some countries including Denmark, France and Italy to greater or lesser extents. Greens lawmaker Pascal Canfin, who sits on the European parliament's economic affairs committee that would scrutinise any eventual laws proposed, said the commission had shown itself to be "broadly hostile" to calls for a tax on financial transactions "for ideological reasons."