In parallel to the above initiatives, that are aimed primarily at ensuring future financial sector stability and risk management, consideration has also been given to additional ways of taxing the financial sector. The European Commission has now set out its vision on this, which consists of a two pronged approach: firstly a global tax on financial transactions (a “Financial Transactions Tax”, or “FTT”) and secondly, an EU-wide tax on profit and remuneration of financial sector companies (“Financial Activities Tax”, or “FAT”). The FTT would be broadly intended to raise important revenues for solutions to global problems, as well as contributing to more stable and efficient financial markets. How the revenue from the FAT would be used is yet to be determined.
Whether such levies are introduced and, if so, how they are structured may have important practical implications for affected financial institutions. One of the key aims of many of the proposals is in fact to influence the behaviour of financial institutions, for example by discouraging excessive risk-taking. For this reason most countries would exclude certain items, such as Tier 1 capital and insured loans, from the levy, and it may be expected that financial institutions will respond accordingly by adapting their funding structures. On the assumption that certain jurisdictions do not introduce such a levy, this may be an important factor in determining where to headquarter a given financial institution.
Other differences that could have practical implications include the different rates, including caps and thresholds, and also the situation where the levy is tax deductible in one jurisdiction but not in another. These differences could create distortions, but also present important opportunities.