On June 12, 2012, Minister of Finance, Mr. De Jager, sent a letter to the Lower House on the possible alternatives for the Financial Transaction Tax (“FTT”). This is a proposal of the European Commission for an EU tax to be levied on financial transactions. There is disagreement between the Member States on whether to adopt the FTT. The Netherlands has urged the European Commission in Brussels to carefully consider the available alternatives. As such, Mr. De Jager prefers a coordinated bank tax to the FTT.
The letter includes the following alternatives:
Financial Activities Tax (“FAT”)
The idea behind the FAT is the fact that the financial sector can achieve higher profits as a result of market failure and market disruptions, and is therefore able to pay higher salaries that are not defensible from an economic point of view. The FAT aims to correct this by taxing profits and remunerations which are not defensible, from an economic perspective. There are three FAT-types:
· A FAT that neutralizes the VAT exemption on financial services;
· A FAT that taxes the surplus profit and excessive remunerations;
· A FAT specifically for excessively high profits and remunerations as a consequence of having run an excessive risk.
Coordinated bank tax
A number of Member States have already introduced a national bank tax, each adapted to the national requirements. This means that banks in several Member States could face double taxation. One alternative for the FTT could be to conclude a multilateral treaty based on the coordination principle, in order to prevent double bank taxation. Minister De Jager prefers this alternative.
VAT on financial services
Certain financial services are currently exempted from VAT. This exemption is compulsory in all EU-countries. VAT on these services could remedy the different tax treatment in comparison with other services.
Step-by-step introduction FTT
Although this is not specifically meant as an alternative for the FTT, Minister De Jager does note that there are reports in the media that Germany is working on a compromise agreement for the step-by-step introduction of the FTT. The first step would be to introduce a tax on shares transactions, the second would be to include bonds in the levy and the final step would be to include derivatives. However, In Minister De Jager’s view this does not remove the basic and negative consequences of the FTT, for example for Dutch pension funds.
Stamp duty
Finally, Minister De Jager refers to the stamp duty levied in the United Kingdom, in addition to the UK bank tax. The stamp duty is levied when shares are traded which were originally issued in the United Kingdom. The structure of the stamp duty is such that the end users are taxed and not the financial institutions.
Minister De Jager expressed his hope that the European Commission will carefully review all the possible alternatives for the FTT. The following criteria must be taken into account:
· keep market disruptions to a minimum;
· equal taxation throughout the European Union;
· relatively easy implementation;
· keep any additional administrative burden to a minimum;
· no significantly negative effect on the Dutch economy, such as for the provision of credit.