APPENDIX 1: IDENTIFICATION OF THE STAKEHOLDER. Contact person: Laurence Pinte ( )

Transcription

1 APPENDIX 1: IDENTIFICATION OF THE STAKEHOLDER Name and address of the respondent, relevant contact details (including address for contact) DEXIA S.A. 11, Place Rogier B-1210 Bruxelles Contact person: Laurence Pinte ( laurence.pinte@dexia.com ) If you are registered with the Commission as an "interest representative" your identification number - Are you a recognised European social partner organisation or a representative of a European (sectoral) social dialogue committee No Field of activity of the respondent. Please specify your field of activity. Please indicate if you are directly affected by any of the measures and if so, which one and to what extent: Banking If the respondent is an association of stakeholders, how many members do you represent and what is your membership structure? - Do you object to publication of personal data on the grounds that such publication would harm your legitimate interests? Yes Do you agree to having your response to the consultation published along with other responses? No page 1

2 APPENDIX 2: ANSWERS TO THE QUESTIONNAIRE Q1: Do you consider it justifiable that the revenue side of fiscal consolidation efforts of Member States are targeting the financial sector? 1. Yes, because 2. No, because 4. Other Q1 ( 1. No because ) The origin, the development and the spreading out of the crisis were due to behaviours, rather than to the belonging to a specific business segment or to tax issues. It is not demonstrated at all that taxing more heavily the financial sector will enable to avoid a new (similar or different) financial crisis. Banks that benefitted from State Aid and public guarantees have already paid (or at least are occupied paying) for it through guarantee fees, shareholders dilution, additional subordinated debt funding cost, or restructuring measures, while in certain jurisdictions, dividends stemming from the financial sector also benefit to the States general revenues. Crisis management and deposit guarantee scheme frameworks are currently drafted or redrafted, aiming at avoiding any further contribution of taxpayers to manage a potential future crisis (the total cost should be supported by the financial industry understood in a broad sense). Together with reengineered regulation and foremost, reinforced supervision frameworks, they are strengthening the first line of defence against systemic risk. Thus, beyond the current works about the crisis management and deposit guarantee schemes, we express serious reservations about the potential setting up of new taxes and contributions, that would be specific to (certain segments of) the financial sector. The "potential under-taxation" of the financial sector should be carefully assessed, particularly since banks are subject to "highly expansive" reengineered regulation and supervision frameworks that should strengthen the first line of defence against systemic risk. An assessment study, asked by the European Commission, should highlight the total amounts of corporate tax payments, irrecoverable VAT and employment taxes paid by banks as commercial entities and employers, and compared to other constituents of the economies. What is the level of the overall tax contribution of the financial sector? VAT regime should be taken into account. As financial services are not subject to VAT, it means that banks cannot deduct VAT charges, which therefore are a pure cost for them. How significant is this cost compared to other key industries that benefit from VAT deduction? Beyond all these contributions, the financial sector is not compensated for its role of tax collector of different withholding taxes. page 2

3 Q2: Do you find it problematic that Member States introduce patch-work national measures without coordination? 1. Yes, because 2. No, because 4. Other Q2 ( 1. Yes because ) Level Playing Field is key. A world-wide framework is indispensable. The introduction of national bank levies raises already double taxation issues. That s why we plead that any double taxation for cross-borders banks must be avoided. The contributions should also avoid distortion to the tax systems and it could be added that in any case a key element is the application of "non bis in idem rule": no double taxation should occur for cross-border banks, a strict definition of the perimeter must be determined or the creation of a tax credit system. Q3: Do you consider that shortcomings in the governance or behaviour of financial markets or financial institutions were one of the major reasons for the financial and economic crisis? 1. Yes, entirely 2. Yes, to a great extent 3. No, just as much as the other sectors 4. No, it was due to government policies mostly 5. Cannot decide 6. Other Q3 ( 6. Other ) The origin, the development and the spreading out of the crisis were due to behaviours, rather than to the belonging to a specific business segment or to tax issues. It is not demonstrated at all that taxing more heavily the financial sector will enable to avoid a new (similar or different) financial crisis. page 3

4 Q4: Which sectors and activities within the financial sector had to do most with the crisis? 1. Investment banking 2. Insurance sector 3. Investment and pension funds 4. Alternative investment funds 6. Traditional (commercial and retail) banking 7. Cannot decide 7. Other Q4 ( 7. Other ) The origin, the development and the spreading out of the crisis were due to behaviours, rather than to the belonging to a specific business segment or to tax issues. It is not demonstrated at all that taxing more heavily the financial sector will enable to avoid a new (similar or different) financial crisis. Q5: Do you consider those shortcomings in the governance or behaviour of financial markets or financial institutions to be an EU-wide problem? 1. Yes, it affected all EU Member States 2. Yes, it affected most EU Member States 3. No, it only affected some/very few EU Member States 4. No, it only affected some/very few EU Member States and spilt over to others 5. Cannot decide 6. Other Q5 ( 5. Cannot decide ) The origin, the development and the spreading out of the crisis were due to behaviours, rather than to the belonging to a specific business segment, to a specific jurisdiction or to tax issues. It is not demonstrated at all that taxing more heavily the financial sector will enable to avoid a new (similar or different) financial crisis. Q6: Do you consider the financial sector in the EU to be under-taxed (e.g. because of VAT exemption, exemption from thin capitalization rules, higher economic rent i.e. excess profits) or overtaxed (e.g. because of special additional taxes already implemented) with respect to other sectors of economic activity? 1. It is under-taxed, because it enjoys the following benefits 3. It is not under-taxed compared to other sectors 4. It is over-taxed, because it suffers the following additional taxation 5. Cannot decide 6. Other page 4

5 Q6 ( 5. Cannot decide ) The "potential under-taxation" of the financial sector (as mentioned page 3 of the consultation) should be carefully assessed, particularly today in countries where dedicated taxes and/or levies are already applied. An assessment study, asked by the European Commission, should highlight the total amounts of corporate tax payments, irrecoverable VAT and employment taxes paid by banks as commercial entities and employers, and compared to other constituents of the economies. What's the level of the overall tax contribution of the financial sector? Following the crisis, Member States have set up national bank levies (stability levies or contributions to resolution funds ) that are an additional cost to take into account. VAT regime: we want to draw the attention of the European Commission on the fact that more than a real advantage, the VAT exemption represents rather a cost for the financial sector and not an advantage. As financial services are not subject to VAT, it means that banks cannot deduct VAT charges, which therefore are a pure cost for them. How significant is this cost compared to other key industries that benefit from VAT deduction? Beyond all these contributions, the financial sector is not compensated for its role of tax collector of different withholding taxes. Q7: Which sectors and/or activities within the financial sector do you think are most undertaxed/over-taxed? 1. Investment banking is under-taxed 2. Insurance sector is under-taxed 3. Alternative investment funds are under-taxed 4. Investment and pension funds are under-taxed 5. Traditional (commercial and retail) banking is under-taxed 6. Investment banking is over-taxed 7. Insurance sector is over-taxed 8. Alternative investment funds are over-taxed 9. Investment and pension funds are over-taxed 10. Traditional (commercial and retail) banking is over-taxed 11. Cannot decide 11. Other Q7 ( 11. Cannot decide ) An assessment study, asked by the European Commission, should highlight the total amounts of corporate tax payments, irrecoverable VAT and employment taxes paid by banks as commercial entities and employers, and compared to other constituents of the economies. The European Commission could ask for a detailed analyse according to the different categories of players within the financial industry. page 5

6 Q8: What do you think of tax measures, versus regulatory measures and levies (connected to the financing of funds to ensure the proper resolution of financial institutions)? 1. Tax measures are sufficient on their own 2. Tax measures may be used for policy aspects not tackled by other measures 3. Tax measures may be used cumulatively with other measures 4. Tax measures must not be used when other measures are in place, the cumulative cost of taxes and regulation is too high 5. Tax measures shall be left to the discretion of Member States due to subsidiarity concerns 6. Taxes would extract cash flow from the financial sector and reduce the ability to increase loss absorbing equity as foreseen by regulatory reforms 7. Cannot decide 8. Other Q8 ( 4 and 6 ) Following the crisis, Member States have set up national bank levies (stability levies or contributions to resolution funds ) that are an additional cost to take into account in the present debate. Taxes would extract cash flow from the financial sector, while the costs of the reengineered regulation and of the supervision frameworks (aiming at strengthening the first line of defence against systemic risk) are already very high. We would like to stress the huge difficulties for the banking industry to face and absorb the global cost of all recent envisaged measures (e.g. Basel III / DGS reforms, Resolution, SIFIs...), without endangering the viability of the financial services sector and the economical environments of the Member States. As a consequence, the ability of the banking industry to grant credits to individual and business clients will be affected. Level playing field is key. In that respect, we would welcome the European initiative to comply as far as possible with international initiatives. If introduced only in the European Union, strong regulatory measures combined with a heavy taxation of the financial sector could lead to a competitive advantage for non-eu financial institutions. Cumulative impact of all envisaged measures should be carefully assessed. The financing from the banking industry should be calibrated: not separately from, but in a combined manner with other risk mitigation measures like supervision reforms, capital reform measures (CRD IV/ Basel III, countercyclical capital buffers, IASB reforms on provisioning, ); taking into account the reformed framework on DGS Directive (under discussion) as well as the European framework to come regarding the crisis management framework; taking into account the national banking levies already set up for "resolution" purposes page 6

7 As general principle, regarding the destination of contributions, we don't really welcome any contributions by the industry that would go to States' general revenue without entailing any counterpart from States (a.o. in terms of deposit protection or resolution). If one cannot consider all measures together before calibration, a "cap" while designing individual contributions is indispensable (though it is difficult to calibrate correctly). Q9: Do you consider that an FTT or an FAT could lead to cumulative social and economic effects in combination with any of the ongoing regulatory reforms in the financial sector, including the banking levy (see COM 2010(301)final)4? 1. Yes, because 2. No, because 4. Other Q9 ( 1. Yes because ) It is very hard to evaluate the global impact of the implementation of a FTT/FAT at this stage. But considering all other measures impacting the banking industry (Basel III / DGS reforms, Resolution, SIFIs, ), a FAT/FTT should affect the ability of the financial sector to grant credits to individual and business clients, particularly in European Union where 2/3 of the investments of enterprises are financed by banking credits. FTT Q10: At what level do you think that the FTT will be most effective? 1. EU level, because there may never be a G20 agreement and the EU must lead by example 2. Global level, because otherwise the trade relocation incentives would be rather big 3. The FTT will not be effective at any level because 4. Cannot decide 5. Other Q10 ( 2. Global level ) Should FTT be an option, taxation at global level (G20) is the best option for level playing field reasons. Otherwise, the trade relocation incentives would be rather big. In no case, the difficulty in setting up a taxation based on behaviours justifies the choice of a taxation that would apply to the whole/certain segments of the financial sector without any distinction. page 7

8 We also plead that any double taxation for cross-borders banks must be avoided. The contributions should also avoid distortion to the tax systems and it could be added that in any case a key element is the application of "non bis in idem rule": no double taxation should occur for cross-border banks, a strict definition of the perimeter must be determined or the creation of a tax credit system. Q11: Do you think that a broad based financial transaction tax is a viable instrument? 1. Yes, because it has the potential to provide substantial revenues (fair and substantial contribution) 2. Yes, but a broad based financial transaction tax must exclude (certain) currency transactions in order to comply with the free movement of capital 3. No, because in case of an FTT implemented at EU level only the transactions will simply move outside the EU, hurting EU competitiveness 4. No, because the impacts on markets (e.g. liquidity, volatility) are not predictable 5. No, because this shall be addressed by changing the VAT rules for the financial sector 6. Cannot decide 7. Other Q11 ( 7. Other ) The establishment of a tax, that could influence behaviours, seems a less unfair option and could potentially be eligible to contribute to the financial sector stability. In no case, the difficulty in setting up a taxation based on behaviours justifies the choice of a taxation that would apply to the whole/certain segments of the financial sector without any distinction. If a FTT was adopted, the criterion for determining the tax base should be focused on speculative behaviours, hence behaviours net of hedging. As such, hedging tools (and their impact on the tax base) have to be excluded, as well as operations on behalf of regulated investment funds. In any case, Level Playing Field is key. A world-wide framework is indispensable. page 8

9 Q12: What do you consider as an appropriate connecting factor for the place of levying of the tax? 1. The place of trading, because it is easy to collect (but with potential for relocation issues) 2. The place where the seller of the instrument is established (but with collection issues) 3. The place where the buyer of the instrument is established (but with collection issues) 4. The places where the buyer and the seller of the instrument are established would tax each by ½ of the rate (somewhat complicated, but addressing issues of swaps for example) 5. The place where the initial issuer is established (not always disposing of the info) 6. The place where the financial intermediary of the buyer/seller is established 7. Cannot decide 8. Other (including a combination of the above) Q12 ( 7. Cannot decide ) Should FTT be an option, we plead for a system that should be easy to introduce and involving low costs of implementation, as well as taking into account potential competition distortion. Q13: Do you think that the value set for the underlying is (in general) a correct tax base for derivatives? 1. Yes, because the investors' returns are based on it allowing substantial leverage 2. Yes, because the great part of/all such derivatives are speculative transactions and shall bear substantially higher tax. 3. Yes, because there is no other reference value for some derivatives (e.g. forwards, swaps, etc.) 4. No, because the tax as related to the investment is disproportionate and will close that legitimate business without producing the revenues expected. 5. No, because derivatives are often used for risk hedging purposes and that does not deserve a disproportionate tax burden 6. Cannot decide 7. Other (including a combination of the above) Q13 ( 7. Other ) Hedging tools have to be excluded from the FTT tax base. page 9

10 Q14: Do you consider that there would be a risk of financial engineering around the broadbased or narrow-based FTT that would undermine the objectives of the measure? 1. Yes, there is such a risk to the narrow-based FTT and it relates to the following 2. Yes, there is such a risk to the broad-based FTT and it relates to the following 3. No, there is no such a risk, because 4. Cannot decide 5. Other (including a combination of the above) Q14 ( 4. Cannot decide ) At this stage, it is very hard to determine whether it would be a risk of financial engineering around the FTT but we are of the opinion that this risk can not be excluded. Q15: What do you think of the FTT designed as a cumulative tax, i.e. every subsequent sale is taxed at the full amount of the transaction without any deduction of previously paid FTT? 1. It is justified, because this will target exactly the short-term speculative trading 2. It is justified, because it is an easy approach (less administrative burden) and the rate of the tax is very low 3. It is not justified, because not all short-term trading is speculative 4. It is not justified, because this will hinder the liquidity of the markets 5. Cannot decide 6. Other Q15 ( 6. Other ) The establishment of a tax, that could influence behaviours, seems a less unfair option and could potentially be eligible to contribute to the financial sector stability. In no case, the difficulty in setting up a taxation based on behaviours justifies the choice of a taxation that would apply to the whole/certain segments of the financial sector without any distinction. If a FTT was adopted, the criterion for determining the tax base should be speculative behaviours, hence behaviours net of hedging. As such, hedging tools (and their impact on the tax base) have to be excluded, as well as operations on behalf of regulated investment funds. In any case, Level Playing Field is key. A world-wide framework is indispensable. page 10

11 Q16: Would there be a need for specific exemption of certain transactions from the FTT or an exemption threshold? 1. Yes, the FTT must exempt the following transactions 2. Yes, the FTT must exempt transactions below the following threshold 3. There is no need to exempt any transactions 4. Cannot decide 5. Other Q16 ( 1. Yes ) If a FTT was adopted, the criterion for determining the tax base should be speculative behaviours, hence behaviours net of hedging. As such, hedging tools (and their impact on the tax base) have to be excluded, as well as operations on behalf of regulated investment funds. If one cannot consider all measures (supervision reforms, bank levies, etc ) together before calibration, a "cap" while designing individual contributions is indispensable (though it is difficult to calibrate correctly). Q17: Do you think FTT rates should be differentiated depending on the type of product traded? 1. Yes, because 2. No, because 4. Other Q17 ( ) The origin, the development and the spreading out of the crisis were due to behaviours, rather than to the belonging to a specific business segment or to tax issues. Q18: Do you think that the tax incidence of the tax will fall on the financial sector, or will it be shifted to the customers? 1. It will fall on the financial sector because 2. It will be shifted to the middle class customers because 3. It will be shifted to the high net worth customers because 4. Cannot decide 5. Other Q18 ( 5. Other ) The tax should likely have an impact to all stakeholders of the banking industry, inclusive customers. page 11

12 Even though the tax is not shifted to the customers, the implementation of a new tax would be part of the cost structure and would jeopardize the profitability of the financial sector and its ability to retain earnings and then to generate own funds, especially since the tax will be added to other bank levies, the current reform of the banking regulation, etc Q19: What do you think of the administrative costs related to the broad-based FTT? 1. They will be comparatively low, because 2. They will be comparatively high, because 4. Other Do you think that it would be the same for a narrow-based FTT? 1. Yes, because 2. No, because Q19 ( 2. Comparatively high ) At this stage, it is very hard to determine the administrative costs related to the implementation of a FTT. Costs will depend on the taxation modalities (withholding tax deducted by the financial institutions? ). Further studies cannot be undertaken as long as no more details are known about the characteristics of the FTT and its collection. In any case, we want to emphasise the fact that the tax burden and implementation costs are to be added to the existing costs borne by financial institutions for their role of tax collector and for which financial institutions are not paid for. Q20: What do you think of the effect on employment from broad-based FTT? 1. It will have an overall negative effect on employment and/or remuneration in the financial sector and the economy as a whole 2. It will have a negligible effect on employment and/or remuneration in the financial sector and no effect on the economy as a whole 3. It will have an overall negative effect on employment and/or remuneration in the financial sector, but the financial sector is already bigger than it should be and the qualified workforce will benefit the non-financial sector 4. It will have an overall positive effect on employment because 5. In case the FTT is not globally implemented, qualified workforce will benefit companies/branches in non-taxing countries 6. Cannot decide 7. Other Do you think that it would be the same for a narrow-based FTT? 1. Yes, because 2. No, because page 12

13 Q20 ( 6. Cannot decide ) The tax should likely have an impact to all stakeholders of the banking industry. The implementation of a new tax would be part of the cost structure and would jeopardize the profitability of the financial sector and its ability to retain earnings and then to generate own funds, especially since the tax will be added to other bank levies, the current reform of the banking regulation, etc At this stage, it is however very hard to determine the whole effect on employment involved by the implementation of a FTT. Further studies cannot be undertaken as long as no more details are known about the characteristics of the FTT. The tax should likely have an impact at least on the financial sector employment. Q21: What do you think of the effect on small and medium enterprises (SMEs) from broadbased FTT? 1. It will have an overall negative effect SMEs because 2. It will have a negligible effect on SMEs because 3. It will have an overall positive effect on SMEs because 4. Other Do you think that it would be the same for a narrow-based FTT? 1. Yes, because 2. No, because Q21 ( ) The tax should likely have an impact to all stakeholders of the banking industry. The implementation of a new tax would be part of the cost structure and would jeopardize the profitability of the financial sector and its ability to retain earnings and then to generate own funds, especially since the tax will be added to other bank levies, the current reform of the banking regulation, etc As a consequence, the ability of the banking sector to grant credits to individual and business clients would be affected. page 13

14 FAT Q22: At what level do you think that the FAT will be most effective? 1. EU level, because there may never be a G20 accord and the EU must lead by example 2. At least G20 level, because otherwise the activities/profits relocation incentives would be rather big 3. The FAT will not be effective at any level because 4. Cannot decide 5. Other Q22 ( 2. Global level ) Should FAT be an option (quod non), taxation at global level (G20) is the best option for level playing field reasons. Otherwise, the trade reallocation incentives would be rather big. In no case, the difficulty in setting up a taxation based on behaviours justifies the choice of a taxation that would apply to the whole/certain segments of the financial sector without any distinction. Q23: What is your opinion of the industry scope of the FAT? 1. It must encompass strictly only the banking sector since it was mainly responsible for the crisis 2. It must encompass strictly only the banking sector because 3. It must encompass the financial sector defined broadly in order to keep the level playing field and prevent a substitution effect 4. It must encompass the financial sector defined broadly because 5. Cannot decide 6. Other Q23 ( 4. Financial sector defined broadly ) The origin, the development and the spreading out of the crisis were due to behaviours, rather than to the belonging to a specific business segment or to tax issues. It is not demonstrated at all that taxing more heavily the financial sector will enable to avoid a new (similar or different) financial crisis. Should FAT be an option (quod non), Level Playing Field is key. A worldwide framework is indispensable. The financial sector has to be defined broadly in order to avoid that part of the sector escapes to the new regulations (i.e. shadow banking system) and creates new systemic risks. At least Hedge funds have to be included in the scope of the FAT. page 14

15 Q24: Which form of FAT do you consider most appropriate? 1. Addition method FAT because 2. Rent-taxing FAT because 3. Risk-taxing FAT because 4. Cannot decide 5. Other Q24 ( 4. Cannot decide ) First of all, should FAT be an option (quod non), it has to be easy to implement, to budget for and to monitor. We understand the rationale underlying the option 1 provided that the nonrecoverable VAT amounts will be taken into account when drawing up the new tax. It is essential that no double taxation occurs between the FAT and the nonrecoverable VAT. As such, the total amount expected for the FAT should at least be reduced, taking into account the irrecoverable VAT amounts born by the financial sector; another way to accomplish this, would be to make sure that the irrecoverable VAT amounts would give the right to a credit tax charged on the due FAT, or that the payment of the FAT would give the right to deduct 100 % of the input VAT. Considering options 2 and 3, the position of the European Commission also aims at establishing a tax related to the behaviour of the market players. However, we are concerned about the practical difficulties involved by both formulas: how to define the excessive level of remuneration ; how to determine whether a return to equity has to be considered as excessive and whether it is due to speculative behaviour and to a good management?... We are not sure that those forms of FAT are really appropriate to limit the risk taken by financial institutions. We are of the opinion that the notion of risk weighted assets could be an objective indicator of the risks taken by the financial institution. This criterion presents the advantage to be already defined in the banking regulations. Reference to this notion would involve less additional implementation costs for the banks. Q25: What are the major difficulties with the three forms of FAT? 1. Addition method FAT has the following difficulties 2. Rent-taxing FAT has the following difficulties 3. Risk-taxing FAT has the following difficulties 4. Cannot decide 5. Other Q25 ( 4. Cannot decide ) We refer to the Question 24. page 15

16 Q26: What do you consider the most appropriate starting point for the addition method FAT? 1. The net profit or loss from the income statement amended with 2. The cash flows of all activities amended with 3. The accounting rules for the different economic operators in the financial sector, even within a single Member State, are rather diverging to rely upon because 4. The accounting rules for the financial sector across Member States are rather diverging to rely upon because 5. Cannot decide 6. Other Q26 ( 4. Cannot decide ) We refer to the Question 24. Q27: What do you consider the most appropriate starting point for rent-taxing and risk taxing FAT? 1. The net profit or loss from the income statement amended with 2. The corporate income tax base from the income statement 3. A harmonised corporate income tax base 4. The accounting rules for the different economic operators in the financial sector, even within a single Member State, are rather diverging to rely upon because 5. The accounting rules for the financial sector across Member States are rather diverging to rely upon because 6. The corporate income tax rules for the different economic operators in the financial sector, even within a single Member State, are rather diverging to rely upon because 7 The corporate income tax rules for the financial sector across Member States are rather diverging to rely upon because 8. Cannot decide 9. Other Q27 ( 4. Cannot decide ) We refer to the Question 24. page 16

17 Q28: Do you consider individual or consolidated statements as more appropriate? 1. Consolidated statements (as per IAS 27) are more appropriate, because 2. Individual statements are more appropriate, because Other Q28 ( 1. Consolidated statements ) Should FAT be an option (quod non), consolidated statements enable to tax the economic reality. Consolidated statements enable also to avoid double taxation, provided that the FAT is implemented at a global level. In this regard, we plead that any double taxation for cross-borders banks must be avoided. The contributions should also avoid distortion to the tax systems and it could be added that in any case a key element is the application of "non bis in idem rule": no double taxation should occur for cross-border banks, a strict definition of the perimeter must be determined or the creation of a tax credit system. Q29: Would there be a need for specific exemption of certain profit/remuneration from the FAT? 1. The addition method FAT must exempt the following profit/remuneration 2. The rent-taxing FAT must exempt the following profit/remuneration 3. The risk taxing FAT must exempt the following profit/remuneration 4. There is no need to exempt any profit/remuneration 5. Cannot decide 6. Other Q29 ( 4. Cannot decide ) We refer to the Question 24. Q30: The state of the head office or group headquarters may tax on the basis of consolidated statements and the state of the branches or group members may also tax those. What do you consider as a suitable solution? 1. Bilateral specific agreements 2. A system of credits must be embedded in the provisions 3. A formulary apportionment must be embedded in the measure 4. Only domestic inflows and/or outflows must be taken into consideration 5. Cannot decide 6. Other page 17

18 Q30 ( 6. Other ) We refer to the Question 28. Q31: Due to the way the tax base in a FAT is derived (their accounting treatment and/or the subsequent adjustment), do you consider that one or more of the following items will be unduly disadvantaged//favoured: (i) financial instruments; (ii) activities; (iii) remuneration packages? 1. Certain financial instruments will be disadvantaged because 2. Certain activities will be disadvantaged, because 3. Certain remuneration packages will be disadvantaged, because 4. Certain financial instruments will be favoured because 5. Certain activities will be favoured, because 6. Certain remuneration packages will be favoured, because 7. Cannot decide 8. Other Please explain further, detailing the financial instruments, activities and remuneration packages that you considered above and provide evidence, if you have any. Q31 ( 4. Cannot decide ) We refer to the Question 24. Q32: Would the addition-method FAT need to be aligned with the current VAT system to avoid the cascading effect from the interaction between the two? 1. Yes, because it is meant to compensate for the VAT exemption, but the financial sector will still bear the input VAT burden and the alignment shall be done in the following way 2. No, it is not practical to align it, because of the of the different nature of the taxes 3. No, it is not practical to align it, because of not being able to attribute the FAT per transaction and 4. No, it is not practical to align it, because 5. Cannot decide 6. Other Q32 ( 6. Other ) Should FAT be an option (quod non), we understand the rationale underlying the option 1 provided that the non-recoverable VAT amounts will be taken into account when drawing up the new tax. It is essential that no double taxation occurs between the FAT and the non-recoverable VAT. As such, the total amount expected for the FAT should at least be reduced, taking into account the page 18

19 irrecoverable VAT amounts born by the financial sector; another way to accomplish this, would be to make sure that the irrecoverable VAT amounts would give the right to a credit tax charged on the due FAT, or that the payment of the FAT would give the right to deduct 100 % of the input VAT. Q33: Could a FAT rate well below the current standard VAT rate reduce distortions that might arise from missing interaction between VAT and addition-method FAT? 1. Yes, because 2. No, because 4. Other Q33 ( 4. Other ) Should FAT be an option (quod non), we understand the rationale underlying the option 1 provided that the non-recoverable VAT amounts will be taken into account when drawing up the new tax. It is essential that no double taxation occurs between the FAT and the non-recoverable VAT. As such, the total amount expected for the FAT should at least be reduced, taking into account the irrecoverable VAT amounts born by the financial sector; another way to accomplish this, would be to make sure that the irrecoverable VAT amounts would give the right to a credit tax charged on the due FAT, or that the payment of the FAT would give the right to deduct 100 % of the input VAT. Q34: Do you think that the tax incidence of the tax will fall of the financial sector, or it will be shifted to the customers? 1. It will fall on the financial sector because 2. It will be shifted to the middle class customers because 3. It will be shifted to the high net worth customers because 4. Cannot decide 5. Other Q34 ( 5. Other ) Should FAT be an option (quod non), the tax should likely have an impact to all stakeholders of the banking industry, inclusive customers. Even though the tax is not shifted to the customers, the implementation of a new tax would be part of the cost structure and would jeopardize the profitability of the financial sector and its ability to retain earnings and then to generate own funds, especially since the tax will be added to other bank levies, the current reform of the banking regulation, etc page 19

20 Q35: What do you think of the administrative costs related to the FAT? 1. They will be comparatively low, because 2. They will be comparatively high, because 4. Other Q35 ( 2. Comparatively high ) Should FAT be an option (quod non), it is very hard, at this stage, to determine the administrative costs related to the implementation of a FAT. Costs will depend on the taxation modalities. Further studies cannot be undertaken as long as no more details are known about the characteristics of the FAT and its collection. In any case, we want to emphasise the fact that the tax burden and implementation costs are to be added to the existing costs borne by financial institutions for their role of tax collector and for which financial institutions are not paid for. Q36: What do you think of the effect on employment from the FAT? 1. It will have an overall negative effect on employment and/or remuneration in the financial sector and will therefore be bad for the economy 2. It will have a negligible effect on employment and/or remuneration in the financial sector and no effect on the economy as a whole 3. It will have an overall negative effect on employment and/or remuneration in the financial sector, but the financial sector is already bigger than it should be and the qualified workforce will benefit the non-financial sector 4. It will have an overall positive effect on employment because 5. Qualified workforce will benefit companies/branches in non-taxing countries 6. Cannot decide 7. Other Q36 ( 6. Cannot decide ) Should FAT be an option (quod non), the tax should likely have an impact to all stakeholders of the banking industry. The implementation of a new tax would be part of the cost structure and would jeopardize the profitability of the financial sector and its ability to retain earnings and then to generate own funds, especially since the tax will be added to other bank levies, the current reform of the banking regulation, etc At this stage, it is however very hard to determine the whole effect on employment involved by the implementation of a FAT. Further studies cannot be undertaken as long as no more details are known about the characteristics of the FAT. The tax should likely have an impact at least on the financial sector employment. page 20

21 Q37: What do you think of the effect on small and medium enterprises (SMEs) from FAT? 1. It will have an overall negative effect SMEs because 2. It will have a negligible effect on SMEs because 3. It will have an overall positive effect on SMEs because 4. Other Q37 ( 4. Cannot decide ) Should FAT be an option (quod non), the tax should likely have an impact to all stakeholders of the banking industry. The implementation of a new tax would be part of the cost structure and would jeopardize the profitability of the financial sector and its ability to retain earnings and then to generate own funds, especially since the tax will be added to other bank levies, the current reform of the banking regulation, etc As a consequence, the ability of the banking sector to grant credits to individual and business clients would be affected. Bank levies Q38: At what level do you think that the levy will be most effective? 1. EU level, because there may never be a G20 accord and the EU must lead by example 2. At least G20 level, because otherwise the relocation incentives would be rather big 3. The levy will not be effective at any level because 4. Cannot decide 5. Other Q38 ( 2. Global level ) Taxation at global level (G20) enables to avoid competition distortions and double taxation issues. Should potential banking levies be implemented, the financing from the banking industry should anyway be calibrated: not separately from, but in a combined manner with other risk mitigation measures like supervision reforms, capital reform measures (CRD IV/ Basel III, countercyclical capital buffers, IASB reforms on provisioning, ); taking into account the reformed framework on DGS Directive (under discussion) as well as the European framework to come regarding the crisis management framework; taking into account the national initiatives already set up for "resolution" purposes; page 21

22 taking into account all other initiatives aiming at filling the gap on public deficits. Q39: What is your opinion of the industry scope of the levy? 1. It must encompass strictly only the banking sector since it was mainly responsible for the crisis 2. It must encompass strictly only the banking sector since the balance sheet concepts for risk weighted assets and Tier 1 capital are not applicable to other parts of the financial sector 3. It must encompass strictly only the banking sector because 4. It must encompass the financial sector defined broadly in order to keep the level playing field and prevent a substitution effect 5. It must encompass the financial sector defined broadly because 6. Cannot decide 7. Other Q39 ( 4. Financial sector defined broadly ) The origin, the development and the spreading out of the crisis were due to behaviours, rather than to the belonging to a specific business segment or to tax issues. It is not demonstrated at all that taxing more heavily the financial sector will enable to avoid a new (similar or different) financial crisis. Should a levy be adopted, Level Playing Field is key. The financial sector has to be defined broadly in order to avoid that part of the sector escapes to the new regulations (i.e. shadow banking system) and creates new systemic risks. At least Hedge funds have to be included in the scope of the levy. Q40: What is your perception of the risk exposure for the financial sector? 1. It mostly referred to investment in risky assets and 2. It mostly referred to financing by "risky" (uninsured) liabilities and 4. Other Q40 ( ) Risk exposure for the financial sector is complex, multidimensional and depends on the business-models involved. In this regard, risk mitigation measures like supervision reforms and capital reform measures (CRD IV/ Basel III, countercyclical capital buffers, IASB reforms on provisioning ) aiming at better tackling the multidimensional risk exposures have been recently drafted. page 22

23 Q41: Therefore, which form of levy do you consider most appropriate? 1. Asset-based FST because 2. Liabilities-based FST because 3. A combination of asset-based and liabilities-based FST because 4. Other Q41 ( 1. Asset-based FST ) The origin, the development and the spreading out of the crisis were due to behaviours. The establishment of a levy that would influence behaviours seems a less unfair option and could potentially contribute to the financial sector stability. We are of the opinion that the notion of risk weighted assets could be an objective indicator of the risks taken by the financial institution. This criterion presents the advantage to be already defined in the banking regulations. Reference to this notion would involve less additional implementation costs for the banks. Q42: What are the major difficulties with the two forms of levy? 1. An asset-based levy has the following difficulties 2. A liabilities-based levy has the following difficulties 4. Other Q42 ( 4. Other ) We are of the opinion that the notion of risk weighted assets could be an objective indicator of the risks taken by the financial institution. This criterion presents the advantage to be already defined in the banking regulations. Reference to this notion would involve less additional implementation costs for the banks. A liabilities-based tax does not take enough into consideration the notion of risk. If not introduced at a global level, the levy (liabilities-based or asset-based) can create double taxation risks. page 23

24 Q43: What do you consider the most appropriate starting point for the asset-based levy? 1. The balance sheet assets side amended with 2. The accounting rules for the different economic operators in the financial sector, even within a single Member State, are rather diverging to rely upon because 3. The accounting rules for the financial sector across Member States are rather diverging to rely upon because 4. Cannot decide 5. Other Q43 ( 5. Other ) We are of the opinion that the notion of risk weighted assets could be an objective indicator of the risks taken by the financial institution. This criterion presents the advantage to be already defined in the banking regulations. Reference to this notion would involve less additional implementation costs for the banks. Q44: What do you consider the most appropriate starting point for the liabilities-based levy? 1. The balance sheet liabilities side amended with 2. The accounting rules for the different economic operators in the financial sector, even within a single Member State, are rather diverging to rely upon because 3. The accounting rules for the financial sector across Member States are rather diverging to rely upon because 4. Cannot decide 5. Other Q44 ( 4. Cannot decide ) We refer to the Question 41. Q45: Would there be a need for specific exemption of certain assets/liabilities from the FST? 1. The asset-based levy must exempt the following assets 2. The liabilities-based levy must exempt the following liabilities 3. There is no need to exempt any assets 4. There is no need to exempt any liabilities 5. Cannot decide 6. Other page 24

25 Q45 ( 6. Other ) Should an asset-based levy be adopted, we are of the opinion that the notion of risk weighted assets could be an objective indicator of the risks taken by the financial institution. This criterion presents the advantage to be already defined in the banking regulations. Reference to this notion would involve less additional implementation costs for the banks. Q46: Would there be a need for a threshold (i.e. the levy is levied only on financial institutions with large balance sheets) or allowance (i.e. for all financial institutions there would be a "tax-free" allowance for a certain amount of assets/liabilities) from the levy? 1. Yes, there must be a threshold for the levy 2. Yes, there must be an allowance for the levy 3. There is no need for a threshold or an allowance 4. Cannot decide 5. Other Q46 ( 5. Other ) Should an asset-based levy be adopted, we are of the opinion that the notion of risk weighted assets could be an objective indicator of the risks taken by the financial institution. This criterion presents the advantage to be already defined in the banking regulations. Reference to this notion would involve less additional implementation costs for the banks. Implementing a "cap" while designing individual contributions is an option that should be discussed, as it is envisaged by the German authorities while defining rules regarding the contribution to the German Resolution Fund. Q47: Do you consider individual or consolidated statements as more appropriate? 1. Consolidated statements (as per IAS 27) are more appropriate, because 2. Individual statements are more appropriate, because 4. Other Q47 ( 1. Consolidated statements ) Should the levy be an option, consolidated statements enable to tax the economic reality. Consolidated statements enable also to avoid double taxation, provided that the levy is implemented at a global level. In this regard, we plead that any double taxation for cross-borders banks must be avoided. The contributions should also avoid distortion to the tax systems and it could be added that in any case a key element is the application of "non bis in idem rule": no double taxation should occur for cross-border banks, a page 25

26 strict definition of the perimeter must be determined or the creation of a tax credit system. Q48: The state of the head office or group headquarters may tax on the basis of consolidated statements and the state of the branches or group members may also tax those. What do you consider as a suitable solution? 1. Bilateral specific agreements 2. A system of credits by the Member State of the group/head office must be embedded in the provisions (credit method in the home Member State, because the risk is borne by the host market) 3. A system of credits by the Member State of the branch/subsidiary must be embedded in the provisions (reverse credit method in the host Member State, because the risk is borne by the home market) 4. A system of exemption by the Member State of the group/head office must be embedded in the provisions (exemption method in the home Member State, because the risk is borne by the host market) 5. A system of exemption by the Member State of the branch/subsidiary must be embedded in the provisions (reverse exemption method in the host Member State, because the risk is borne by the home market) 6. A formulary apportionment must be embedded in the measure 7. Cannot decide 8. Other Q48 ( 7. Cannot decide ) We refer to the Question 47. Q49: What would be the solution for attribution of assets/liabilities to bank branches (not subsidiaries)? 1. The authorised OECD approach for attribution of assets/liabilities must be used 2. A modified approach taking into consideration only taxable assets/liabilities must be used 4. Other Q49 ( 1. OECD approach ) The OECD approach seems to be the only general standard and therefore is probably the most appropriate solution. However, this approach is not interpreted in the same way by all countries and does not mitigate enough the risk of double taxation. That s why Level Playing Field is key. A world-wide framework is indispensable. We plead that any double taxation for cross-borders banks must be avoided. The contributions should also avoid distortion to the tax systems page 26

27 and it could be added that in any case a key element is the application of "non bis in idem rule": no double taxation should occur for cross-border banks. Q50: Since some Member States have already implemented such levies, which are different in their features, what do you think the interaction should be with those levies? 1. All individual levies/taxes based on the balance sheet must be repealed 2. All individual levies based on the balance sheet must allow for a credit for the EU-wide levy 3. The national and EU-wide levy may coexist 4. Cannot decide 5. Other Q50 ( 5. Other ) We plead that any double taxation for cross-borders banks must be avoided. The contributions should also avoid distortion to the tax systems and it could be added that in any case a key element is the application of "non bis in idem rule": no double taxation should occur for cross-border banks, a strict definition of the perimeter must be determined or the creation of a tax credit system. Either all individual levies (and not only liabilities-based levies) could allow for a credit for the EU-wide levy, or all national measures must be repealed. Should a levy be implemented (at European or national level), it should also be calibrated in a combined manner with all other risk mitigation measures like supervision reforms, capital reform measures (CRD IV/ Basel III, countercyclical capital buffers, IASB reforms on provisioning, ) and/or other specific taxes or levies. Q51: Due to the way the tax base in a levy is derived (their accounting treatment and/or the subsequent adjustment, do you consider that one or more of the following items will be unduly disadvantaged/favoured: (i) investments; (ii) financing means; (ii) activities in general? 1. Certain investments will be disadvantaged, because 2. Certain financing means will be disadvantaged, because 3. Certain activities will be disadvantaged, because 4. Certain investments will be favoured because 5. Certain financing means will be favoured because 6. Certain activities will be favoured, because 7. Cannot decide 8. Other Please explain further, detailing the investments, financing means, and activities that you considered above and provide evidence, if you have any. page 27