The European Commission presented on 7 October its Communication on Taxation of the Financial Sector, outlining the measures to be implemented and the contribution the financial sector should make towards public finances and the stability of public resources. Although at a global level Commission considers that a Financial Transactions Tax (FTT) would be appropriate, at EU level it considers that a Financial Activities Tax (FAT) would be a better option to tax financial sector.

The Commission considers that if carefully designed and implemented, an EU Financial Activities Tax (FAT) could generate significant revenues and help to ensure greater stability of financial markets, without posing undue risk to EU competitiveness.

Global and an EU approach towards banking tax

The issue of taxing financial transactions has been prominently discussed during the United Nations High Level Plenary Meeting on the Millennium Development Goals. Moreover, the High Level Advisory Group on Climate Change Financing established by the UN Secretary General has also looked at the revenue-raising potential of key sectors active at the global scale, including the financial sector but also international air and maritime transport.

The Commission supports the idea of a Financial Transaction Tax (FTT) at global level, and will continue to work for this within the G20. If ambitious global objectives are to be achieved, in areas such as development aid and climate change, international partners will need to agree on global financing tools.

At European level, the Communication suggests that a Financial Activities Tax (FAT) should be considered targeting the profits and remunerations of financial sector companies. In this way, it would tax the corporations, rather than each actor involved in a financial transaction.

A fair contribution from financial sector

Regarding the contribution of financial sector to public budget and taking into account that the financial sector was a major cause of the financial crisis and received substantial government support over the past few years, the Commission considers that a new tax could help to ensure that the financial sector makes a fairer and more substantial contribution to public finances, would provide additional sources of revenue and would help create a stable and more efficient financial sector.

Commission's Communication on Taxation of the Financial Sector, will be presented to EU Finance Ministers at the ECOFIN Council on 19 October, and to EU Heads of State and Government at the European Council at the end of October. An EU position on financial sector taxation will be presented at the G20 Summit in November, with a view to encouraging international partners to agree on a global approach. The Commission will also begin an in-depth Impact Assessment to further examine the ideas it has set out in today's Communication, with a view to coming forward with policy initiatives in 2011.