Venice Summer Institute 2012: Taxation of the Financial Sector

The recent financial crisis has triggered public support for new and increased taxes on the financial sector. Some see the financial sector as being too large and taking up too much risk due to implicit or explicit State guarantees, information asymmetries and tax privileges. In the European Union, for instance, the sector derives substantial benefits from being exempt from the VAT. Together with the considerable strains on public finances today, it provides firm political support to ensure that the financial sector makes a fair and substantial contribution to public budgets.

Several countries across the world have already introduced new taxes on the financial sector, such as bank levies, transactions taxes, value-added taxes or payroll taxes. Moreover, the European Union and the G20 have been discussing options for coordinated action. At the same time, regulatory changes such as more stringent capital requirements are affecting the sector. This raises the question
as to how taxes interact with regulation and how they should be jointly determined.