EN    EN EN 
EN    EN  EUROPEAN COMMISSION 
Brussels, 7.10.2010 
SEC(2010) 1166 
COMMISSION STAFF WORKING DOCUMENT 
Financial Sector Taxation  
 
  
accompanying the 
 
COMMUNICATION FROM THE CO MMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMI TTEE OF THE REGIONS 
 
Taxation of the Financial Sector 
  
{COM(2010) 549 final} 
EN 2   EN Table of Contents 
Executive summary .............................................................................................................. ...... 3 
1. Current Policy Objectives ............................................................................................ 4 2. Current taxation of the Financia l Sector in Member States ......................................... 5 
2.1. Importance of the Sector .............................................................................................. 5 2.2. Share in Corporate Income Taxation ........................................................................... 7 2.3. Value-Added Taxation................................................................................................. 8 2.4. Overall assessment of fina ncial sector taxation ........................................................... 9 
3. Policy Instruments........................................................................................................ 9 3.1. The Financial Transaction Tax................................................................................... 10 3.2. The Financial Activities Tax...................................................................................... 12 4. Financial Transactions Tax ........................................................................................ 13 4.1. Policy debate and options for an FTT........................................................................ 13 4.2. The economics of FTT............................................................................................... 13 4.3. Potential for unilateral introduction ........................................................................... 18 5. Financial Activities Tax ............................................................................................. 20 5.1. Policy debate and options for a FAT.......................................................................... 20 5.2. The economics of FAT............................................................................................... 20 5.3. Potential for unilateral introduction ........................................................................... 26 Annex A: Taxation of financia l transactions in the EU ........................................................... 27 
Annex B: Country Experience ................................................................................................. 37 B.1 Transfer taxes and Stamp Duties ....................................................................................... 37 B.2 Member States' experien ces with FAT elements............................................................... 42 
EN 3   EN EXECUTIVE SUMMARY  
The global economic and financial crisis has crea ted important needs for fiscal consolidation. 
This document analyses potential instruments to raise additional tax revenues from the 
financial sector. It is organi sed as follows. The first section reviews the current policy 
objectives related to the taxation of the financial sector. The main goals driving this debate are: the use of taxation as (1) a complement to  regulation to correct fo r negative externalities 
stemming from the activities of the financial se ctor, which include the effects of excessive 
risk-taking; (2) to ensure that the financial s ector pays a fair and s ubstantial contribution to 
public finances, in particular with regard to the economic and financia l crisis; (3 ) to raise 
funds in the context of the ex it-strategy. Section 1 also brie fly discusses the link between 
taxation and regulation. 
The second section sheds some light on the curren t tax treatment of the financial sector. The 
third section discusses potential tax instru ments to reach the goals outlined above. The 
Financial Transaction Tax (FTT) and the Financ ial Activities Tax (FAT) are tax instruments 
which recently received  considerable attention. Bo th will therefore be w ithin the focus of this 
document. 
The fourth and fifth section respectively assess the advantages and drawbacks of a Financial 
Transaction Tax and a Financial Activities Ta x, including the issues  raised by a possible 
introduction at the EU level only if no agreemen t is reached at G-20 leve l. The analysis shows 
that both instruments could be candidates fo r a tax on the financial sector (FAT) or on 
financial markets (FTT). An impor tant difference between the two instruments is that the FAT 
seeks to target the value-added by the financial sector, while the FTT is directed at the transactions executed on financial markets. 
EN 4   EN 1. CURRENT POLICY OBJECTIVES  
The European Council stated in its conclusions of its meeting on 17th June 2010 with regard to 
the G-20 Toronto Summit that "[t]he EU should  lead efforts to set a global approach for 
introducing systems for levies and taxes on financ ial institutions with a view to maintaining a 
world-wide level playing field and will strongl y defend this position with its G-20 partners. 
The introduction of a global fi nancial transaction tax should  be explored and developed 
further in that context." This Staff Working Do cument (SWD) is based on an issues note that 
responded to this request. It outlines key issu es relating to two dis tinct proposals for new 
forms of taxation of the financial sector. Th e SWD is a technical paper prepared by the 
Commission Services and does not prejudge future policy orientations. 
In addition to the debate on further taxes on the financial sector, there is an ongoing 
discussion on how to avoid that the taxpayer w ould finance the resolution of failing banks in 
the future. With regard to the latter debate, the Commission has proposed the establishment of 
national resolution funds which would be fina nced by bank levies. The Commission has set 
out its main thoughts on this issue, which is dist inct from financial sector taxation, in a recent 
Communication (COM(2010) 254)1. It is not covered in this document. 
The question as to whether new taxes should be levied on the financial sector to complement 
regulation and bank levies has been a topic sinc e the beginning of the economic crisis. In this 
debate, three main policy goals  can be identified2: 
1. Taxes could enhance the efficiency and st ability of financial markets and reduce 
their volatility and the harmful effects of excessive risk-taking which can create 
negative externalities for the rest of the economy. In particular, the financial sector 
might be too large and take too much risk  due to actual or e xpected state support 
(resulting in moral hazard), information asymmetries and remuneration structures 
which together with macroeconomic developm ents contributed to the recent crisis.  
 2. The financial sector has been particularly pr ofitable in the last two decades and there 
is a desire to ensure that the financial sector makes a fair and substantial 
contribution to public finances .  
 3. The financial sector is seen to bear a majo r responsibility in the occurrence and extent 
of the crisis. The financial sector could therefore contribute via increased or new 
taxes to fiscal consolidation in the aftermath of the crisis . These additional taxes 
could also be justified by the fact that the sector received s ubstantial government 
support during the recent crisis and not all of  it might be recouped. 
In recent months, various tax measures have been debated in several international fora, 
including the EU and th e G-20, with a view to pursuing thes e objectives. In this context, the 
European Commission services have publishe d a Staff Working Document on innovative 
                                                
 
1  The Commission Communication on "Bank Resolution Funds" of 26 May 2010 suggests the setting up 
of 27 harmonised Member States' funds to finance the orderly and financially non-disruptive resolution 
of EU banks. It suggests that these funds should be pre-funded by financial sector contributions, referring to bank's' liabilities as one potential reference value. 
2  There is also an ongoing debate about the use of po tential revenue. This paper will not contribute to this 
debate. 
EN 5   EN financing at global level th at dealt inter alia with financial sector taxation3. Furthermore, the 
IMF has presented a report to the G-20 ministerial meeting in  June 2010 on possibilities for 
taxing the financial sector4. At this stage, there is not yet a consensus on an internationally co-
ordinated tax at the G-20 level, partly reflecting the differential impact of the crisis across its members. The question therefore arises whethe r the unilateral introduction in the European 
Union of some of the instruments that have be en subject of debate would be feasible and 
reasonable. 
This debate on a unilateral introduction takes place in an environment where the European 
economy is gradually recovering fr om the crisis. The financial sector can play an important 
role in this recovery by providi ng credit to companies and households
5. The debate about 
additional tax measures must therefore also take  into account the impact of these measures on 
the supply of credit by the financial sector in bot h the short- as well as in the long-run and in 
particular the exit from extrao rdinary public support measures di rected at the financial sector. 
They should also be considered in conjunction w ith other public policy, especially regulatory 
reforms that have been or are likely to be intr oduced so that decisions makers are appraised of 
their cumulative impact, including consumers (notably households and SMEs). New taxes 
will also have transitional and longer term effects on the overall business of the financial 
sector and thus the EU economy6. In particular, the design of tax instruments would have to 
be fine-tuned to minimize effects on interban k lending and the costs of financing for EU 
Member States, businesses and households in the future. 
2. CURRENT TAXATION OF THE FINANCIAL SECTOR IN MEMBER STATES  
2.1. Importance of the Sector 
In most if not all Member States, one elem ent of the financial sector, the banking sector7, is 
both of high economic importance and relatively  concentrated. For the EU27, the assets of 
banks and the amount of private credit repres ent about 140% and 130% of GDP respectively, 
while the amount of bank deposits and the stoc k market capitalisation of the banking sector 
are about as high as GDP. The average combined share of assets of the three largest banks in 
each Member State is about 70%8. However, national shares range widely across Member 
States.9. 
                                                 
3 See European Commission (2010), Innovative financing at a global level - Commission Staff Working 
Document SEC(2010) 409, 1.4.2010. 
4 IMF (2010), A Fair and Substantial Contribution be the Financial Sector, Final Report for the G-20, 
June 2010.  
5 The OECD defines the Financial Sector as the set of institutions, instruments, and the regulatory 
framework that permit transactions to be made by incurring and settling debts; that is, by extending credit. See http://stats.oecd.org/glossary/detail.asp?ID =6815. For the purpose of this document the term 
financial sector is used along those lines. 
6 See COM(2010) 301 for a complete set of regula tory measures already ta ken or currently under 
consideration. 
7 The banking sector is only a part of the whol e financial sector which also includes credit card 
companies, insurance companies, consumer finance companies, stock brokerages, investment funds and 
some government sponsored enterprises. 
8  Assets of three largest banks as a sh are of assets of all commercial banks. 
9  2008 Data from Thorsten Beck and Asli Demir güç-Kunt, Financial Institutions and Markets Across 
Countries and over Time: Data and Analysis, World Bank Policy Research Working Paper No. 4943, 
May 2009. 
EN 6   EN Table (1a): Share of the financ ial sector in total value-added  
 Australia United States Canada Japan Euro area 
1980 3.74 4.91 4.84 5.17 4.74 
1990 5.73 5.86 6.00 5.95 5.52 
1995 6.06 6.64 6.62 6.18 5.46 
2000 7.14 7.54 7.06 5.82 4.99 2005 7.79 7.97 7.37 6.69 6.32 
2006 7.85 8.05 7.64 6.71 6.16 
2007 8.99 7.90 7.78 6.43 5.89 2008 8.71 8.02 7.93 5.59 5.84 
2009 8.53 8.08 8.15   
Source: BIS (2010), 80th annual Report, page 77. 
In terms of relative size, the sector has gene rally grown both in terms of value-added and 
market capitalisation. Here again, there are coun try-specific developments and an impact of 
the financial crisis. 
Table (1b): Share of the financial sector  in total value-added (EU27, NO and CH) 
 1980 1990 1995 2000 2005 2006 2007 2008 2009 
EU27 n.a. n.a. n.a. 4.7 5.2 5.3 5.3 5.3 5.8 
BE n.a. 6.0 6.3 5.9 5.7 5.6 5.4 5.0 n.a. 
BG n.a. n.a. n.a. n.a. 5.5 5.6 6.9 n.a. n.a. 
CZ n.a. n.a. 3.1 2.7 2.9 2.9 3.6 3.5 n.a. 
DK n.a. 4.7 5.2 4.7 5.4 5.4 5.6 5.8 7.1 
DE n.a. n.a. 4.4 3.9 4.3 4.1 3.6 3.4 n.a. 
EE n.a. n.a. 2.2 4.1 3.6 3.8 4.0 4.0 n.a. 
IE n.a. n.a. n.a. n.a. 10.3 10.5 10.9 10.3 n.a. 
EL n.a. n.a. n.a. 5.4 4.6 4.7 4.6 4.4 n.a. 
ES n.a. n.a. n.a. 4.5 4.5 4.6 5.2 5.2 n.a. 
FR 4.5 5.4 4.8 5.1 4.8 4.9 4.7 4.5 5.0 
IT n.a. 4.7 4.4 4.4 4.4 4.4 4.8 5.0 n.a. 
CY n.a. n.a. 5.3 6.5 6.8 7.5 7.8 8.0 n.a. 
LV n.a. n.a. 5.0 4.9 5.9 6.8 6.2 6.0 n.a. 
LT n.a. n.a. 2.1 2.2 2.3 2.9 3.3 3.5 n.a. 
LU n.a. n.a. 21.8 24.8 25.6 29.5 28.1 28.9 n.a. 
HU n.a. n.a. 3.0 2.9 4.2 4.1 4.0 3.9 n.a. 
MT n.a. n.a. n.a. 5.9 4.9 5.0 4.4 4.6 n.a. 
NL 4.9 4.9 6.2 5.9 7.4 6.5 5.6 5.9 n.a. 
OE n.a. n.a. 5.7 5.6 5.3 5.5 5.6 5.2 n.a. 
PL n.a. n.a. 2.6 4.9 4.3 4.5 5.2 5.2 n.a. 
PT n.a. n.a. 6.1 6.0 6.4 7.3 8.2 9.0 9.0 
RO n.a. n.a. n.a. 4.4 2.3 2.0 2.1 n.a. n.a. 
SI n.a. n.a. 5.7 4.7 4.3 4.8 4.4 4.3 n.a. 
SK n.a. n.a. 6.2 2.2 4.3 3.6 3.3 3.4 n.a. 
FI 2.5 4.1 4.4 4.5 2.5 2.9 3.2 2.8 3.2 
SE n.a. n.a. 4.5 4.5 4.7 4.1 3.9 3.8 4.5 
UK n.a. 6.1 5.8 5.1 7.0 7.6 8.2 9.6 n.a. 
NO 3.5 5.2 4.4 3.0 3.9 3.7 3.9 n.a. n.a. 
CH n.a. n.a. 8.5 13.2 12.0 12.8 13.7 n.a. n.a. 
Source: Eurostat Annual Sectoral Accounts. 
EN 7   EN Table (2): Share of the financial se ctor in total market capitalisation  
  1970s 1980s 1990s 2000s 
CA 13.77 17.16 21.40 29.98 
DE 20.81 29.89 31.73 24.31 
UK 23.33 18.75 19.99 26.20 
JP 20.72 24.21 26.42 17.90 US 5.61 8.35 14.02 19.96 
Source: BIS (2010), 80th annual Report, page 77.  
2.2. Share in Corporate Income Taxation 
The debate on a fair contribution of the financia l sector to corporate tax collection cannot be 
disconnected from the issue of pr ofitability of the sector. There is evidence that the financial 
sector has been more profitable than the non-financial sector over the last two decades10. This 
is not problematic as such if higher profit is  related to high producti vity. However, the high 
profitability of the sector coul d result from certain sector specific characteristics. For 
example, the financial sector is different from other sectors in respect of the existence of an 
(implicit or explicit) safety net which, combin ed with banking regulation may enable some 
institutions to enjoy economic re nts; and in the relative ability of certain financial institutions 
to use leverage to increase returns. 
Table (3): Return on equity in BIS reporting countries 
 95-09 95-00 01-07 08-09 
Banks 12.2 13.3 12.8 3.2 
Non-bank financials 11.2 12.3 11.4 5.4 
Non-financials 11.7 10.9 12.8 9.8 
Source: BIS (2010), 80th annual Report, page 75. Return on equity is defined  as net income over total shareholder funds. 
Median values across years and institutions. 
High profitability can possibly point to the ex istence of economic rent s that are captured 
either by managers in the form of higher remu neration or by shareholders in the form of 
higher returns. Current available data is unfortu nately scarce and patchy. Table (3) seems to 
indicate that return on equity in the financial se ctor has broadly been at  par with that of the 
non-financial sector. However, th ese median values hide large variations across institutions, 
years and countries. For example, the Bank for In ternational Settlements reveals that German 
financial companies have posted higher return on their stocks than German non-financial 
companies since the 1970s up to the financial cr isis, but the same cannot be said for e.g. UK 
companies except in the 1990s (see Table 4)11. Turning to remuneration, there is some 
piecemeal evidence which would suggest that rem uneration in the financial sector is or has 
been higher than in other sectors12. 
In terms of their contribution to corporate tax receipts, the financial sector accounted for a 
substantial share of such revenues before th e crisis. The EU-27 GDP-weighted average share 
                                                 
10  See Devereux, M.; Griffith, R; and A. Klemm (2004), Why has the UK Corporation Tax Raised so 
Much Revenue?, Fiscal Studies , 25(4): 367-388. 
11  Higher performance of stocks also partly reflects higher risk (measured by volatility). 
12  See for example Philippon, Thomas, and Ariell Re shef (2009), Wages and Human Capital in the US 
Financial Industry: 1909 – 2006. CEPR Discussion Paper No. 7282. They found for the US that starting 
in the 1990s 30% to 50% of the wage differential between the financial and non-financial sectors is due 
to rents. 
EN 8   EN of the contribution by the financial sector to total corporate tax collection was around 20% in 
both 2006 and 2007. It decreased to 17%  in 2008 as a result of the crisis and this share will 
most probably decrease further in the coming y ears due to the fact that the accumulated losses 
during the crisis will reduce future tax paymen ts via loss carry-forward. The values for the 
EU27 are similar to those for many non-EU G- 20 countries, as collected by the IMF for its 
report to the G-20. For example, between 2006 a nd 2008, the share of the financial sector in 
total corporate tax collection was around 18% fo r the United States, 23.5% for Canada and 
around 15% in Brazil and Australia.  
Table (4): Relative return of financial stocks 
  1970s 1980s 1990s 2000s 
Canada 2.25 -0.39 2.48 5.70 
Germany 1.82 3.29 4.10 -6.65 
United Kingdom -1.10 -4.03 2.66 -6.34 
Japan  -7.17 2.80 -5.06 -0.25 United States -1.58 -1.33 4.42 0.07 
Source: BIS (2010), 80th annual Report, page 76. Average return on financ ial stocks minus that on non-financial stocks, 
annualised in percent. 
For the EU27, the share of the financial sector employment in total em ployment is 3%. Its 
share in total value-added is 5%. Despite this , its share in total Corporate Income Taxation 
(CIT) is around 20%. This is how ever no evidence that the financ ial sector is over-taxed as 
higher profitability – whether it stems from rents or not – inevitably leads to higher taxes. It is 
indeed difficult to determine a benchmark agains t which to assess whether the financial sector 
is over- or under-taxed. 
2.3. Value-Added Taxation 
If statutory provisions of cor porate tax systems do not seem to differentiate between the 
financial sector and the non-fi nancial activities, the same is not true for Value-Added 
Taxation (VAT). Since the adoption of the Si xth VAT Directive in 1977, the EU's common 
value added tax system has generally exempt ed mainstream financial services including 
insurances and investment funds . Article 135(1) of the VAT Di rective provides an exemption 
from VAT for most financ ial and insurance services13. To some extent the Directive reflects 
an uncertain approach in that it also allows EU Member States to gr ant taxable persons the 
option of taxing financial services – to the extent that this is technically possible. The difficulty is, however, to techni cally define the price for sp ecific financial operations. Around 
                                                
 
13  In this respect it should be noted that the relatively recent Commission proposals for a Directive - 
COM(2007) 747 - and a Regulation - COM(2007) 746 - as regards the VAT treatment of insurance and 
financial services aim at modernising and simplifying the current complex VAT rules for financial and 
insurance services and securing a level playing field in  the pan-EU market for these services as far as 
VAT is concerned. The proposals w ill create more certainty and secu rity for Member States and for 
financial and insurance institutions by setting clear modern definitions of exempt services. It will also allow these institutions to manage the costs of non-deductible VAT by allowing them, where 
technically possible, to opt for taxation and by clarifying and extending the tax exemption for cost 
sharing arrangements. 
EN 9   EN 2/3 of all financial services are margin base d which makes the implementation of the invoice-
credit VAT system very difficult in this respect14. 
The extent to which applying VAT to the financial sector would raise additional tax revenues 
and – consequently – the extent to which th e exemption constitutes an under-taxation case for 
the financial sector is an uns ettled empirical question. Whereas  the exemption means that the 
financial sector does not  charge VAT on most of its output,  it cannot deduct the VAT charged 
on its inputs. This is known as the 'irrecove rable VAT problem'. Based on case studies, 
PricewaterhouseCoopers (2006) found that VAT rec overy rates in the financial sector varied 
from 0% to 74%15. The variations in recovery rates coul d be explained by differences in the 
way in which the Member States interpret the scope of the exemption and the option to tax. 
In some Member States, financial institutions ar e subject to specific tax measures designed to 
compensate for the VAT exemption. These ar e known as the application of the addition 
method and will be discussed in the section on the Financial Activities Tax16. 
2.4. Overall assessment of financial sector taxation 
While the CIT does not seem to tax the financia l sector lighter than other sectors, the VAT 
exemption of financial services might lead to a favourable tax treatment of the sector despite 
the fact that input VAT is not  deductible for the sector. Th ere are currently no data on the 
contribution of the sector to ove rall personal income tax receipts (via the taxation of financial 
sector employees' wages and salaries).  
3. POLICY INSTRUMENTS  
In addressing the three policy goals outlined above a number of tax instruments have been 
discussed in recent months17. It is important to distinguish these proposals as they are often 
confused in the public debate. In this following section, the focus will be on the Financial 
Transaction Tax (FTT) and the Financial Activit ies Tax (FAT). The two instruments represent 
two different approaches to taxation. While  the FTT is a turnover tax on financial 
transactions, the FAT is a profits and remune ration based tax. Other instruments have been 
discussed, decided or already enacted in several Member States but will not be discussed here. 
Such taxes include:  
                                                 
14  The problem of VAT on financial services is de scribed in detail in Kerrigan, Arthur (2008): The 
Elusiveness of Neutrality –Why Is It So Difficult To Apply VAT to Financia l Services? International 
VAT Monitor March/ April 2010. 
15  PricewaterhouseCoopers (2006), Economic effects of the VAT exemption for financial and insurance 
services, Report to the European Commission. 
16  Note that some countries apply specific method  to compensation for VAT exemption. For example, 
New Zealand applies VAT to general insurance (but not to life insurance, creditor protection policies, 
and other financial intermediation services), Singapore taxes agency services, Australia includes 
financial agency services and non-life insurance and pr ovides input credits for financial services, Israel 
and Quebec apply the addition method (Poddar, S., 2003, Consumption Taxes: The Role of the Value-
Added Tax in Taxation of Financial Intermediation , P. Honohan Editor, Oxford University Press, pp. 
345-380. 
17  For a presentation and evaluation of instruments under consideration see the documents from the IMF 
and the European Commission cited above.  
EN 10   EN (a) Bonus taxes: impose a surcharge on bonuses paid to employees in specific sectors and 
which are above a defined threshold. 
(b) A surcharge to the corporate in come tax for the financial sector. 
(c) A Currency Transaction Levy (CTL): this would have the sa me principle as the FTT but 
would target currency conversions only. A “Gl obal Solidarity Level” ba sed on this principle 
was recently proposed by the Committee of Expe rts to the Task Force on International 
Financial Transactions and De velopment" in a recent report18. Contrary to the FTT, the levy is 
not designed to change market be haviour as such. The study argues that the very low rate of 
0.005% would lead to only negligible effects on markets. It is designed as a pure revenue 
raiser19. 
One reason for not including these instruments is that increased profit and bonus taxation is 
covered by the FAT, while a currency transa ction levy is part of a general FTT. 
Furthermore, a general remark on tax revenue estimates for new tax instruments should be 
made. Estimating revenue changes when reformi ng existing taxes is already a difficult task 
since behavioural changes due to tax rate or base changes are often difficult to predict. 
Estimating revenue for taxes which would be ne wly introduced and which have (at least for 
the FTT to some extent) the goal to change ma rket behaviour and structure significantly is 
even more challenging. Ther efore, all revenue estimate s presented below should be 
interpreted with great caution and serve mainly  to give an order of magnitude. Moreover, 
notwithstanding the often substantial projected  receipts, the conse quences of governments 
increasing their reliance on this relatively vo latile sector for their revenues should be 
considered carefully. 
3.1. The Financial Transaction Tax 
The concept of a Financial Transaction Tax has recently received wide public attention. Such 
a tax would be applied to all fi nancial transactions in particul ar those carried out on organised 
markets such as the trade of equ ity, bonds, derivatives, currencies, etc.20. It would be levied at 
a relatively low statutory rate  and would apply each time the underlying asset was traded. The 
tax collection or the legal tax in cidence should be – as far as po ssible – via the trading system 
which executes the transfer21. 
                                                 
18  The Experts to the Leading Group’s Task force on International Financial Transactions and 
Development recommended for a number of reasons the global application of a currency transaction 
levy to finance development aid. This tax is a subset of the broad FTT discussed here. It limits the scope to currency transactions only. http://www.leadinggroup.org/article668.html
. 
19  As far as a CTL is concerned, levying a tax of 0.005% on the world's most traded currencies could yield 
an amount of EUR 24 billion annually using data fr om 2007. According to recent estimates, a CTL of 
this rate levied on transactions with the euro involved would yiel d a yearly amount of EUR 9.5 billion 
while a coordinated tax on all major currencies ex cept the USD would generate EUR 15.5 billion. A tax 
on Euro and Pound only would raise some EUR 12 billion per year. See Schmidt, Rodney (2008): The 
Currency Transaction Tax – Rate and revenue estimates, North-South Institute, United Nations 
University Press. Hillman, David (2 009): The Currency Transaction Levy. 
20  Directive 2004/39/EC establishes clear definitions of  regulatory market and multilateral trading system. 
21  Note that the legal or statutory tax incidence can be different from the economic incidence. The latter 
will be discussed in more detail below. 
EN 11   EN In order to give a range of potential revenues, tw o different scenarios will be discussed in this 
paper. The variants discussed here di ffer in their definition of the tax base22. 
a. A broad based FTT (FTT1) The first variant is to tax st ock, bond and derivative transac tions on exchanges as well as 
over-the-counter (OTC) traded instruments
23. For stocks and bonds the value of the 
transaction constitutes the tax base, for deriva tives the notional (or underlying) value of the 
contract. This is FTT1 which has a very broad tax base due to the inclusion of derivatives24. 
The revenue raising potential of the tax as well as its economic effects depends on the design 
of the tax and especially on the tax bases selecte d. In general, the tax base is usually defined 
as the value of the transaction.  For example, if an investor buys 20 shares of a corporation 
worth EUR 100 per share the tax base would be EU R 2,000. In this sense, it is easy to define 
tax bases for transactions where the asset price is determined by the market at the time when 
the transaction is executed. This  is the case for s pot transactions like  stocks, bonds and 
currency exchanges.  
For derivatives, the determination of the transa ction value is more complex. In principle, one 
could argue that the value of the notional value could be the tax base. Given the sometimes 
high leverage of certain derivatives this has two effects. On the one hand, taxing the notional 
value creates a very large tax base. On the ot her hand, the tax payment is large compared to 
the actual price paid for the contract. While this could reduce leverage taken by means of 
these contracts it would also increases the costs for companies when hedging risk. Also, 
taxing the notional might lead to double taxation in the case where the underlying is traded 
and taxed at the spot market if for example an option is executed. Instead of taxing the 
notional, an alternative way of taxing deriva tives could be to tax the actual price only25. 
However, this would reduce the tax base signif icantly. Taken together, there remain important 
issues with regard to the definition of the tax base for derivatives.  
b. A narrow based FTT (FTT2) This is the reason why a second tax base is c onsidered. This narrow based FTT is called 
FTT2. FTT2 is based on the conservative assu mption that only bonds and stock transactions 
are taxed. These two scenarios de scribe two potential tax bases, one at the high, and the other 
at the low revenue end. In case of an impl ementation of an EU-wide FTT, it will depend on 
the precise definition of the EU tax scope and ba se whether it is closer to the broad FTT1 or 
the narrow based FTT2. 
                                                
 
22  Some current proposals envisage limiting the scope to a subset, namely the above mentioned. currency 
transaction levy. 
23  The OTC transactions include derivative transacti on as well as foreign exchange spot transactions. 
24  FTT1 corresponds to the data basis for the estima tes in Schulmeister, Stephan, Margit Schratzenstaller 
and Oliver Picek (2008). A General Financial Tr ansaction Tax. Motives, Revenues, Feasibility and 
Effects. Research Study by the Austrian Institute of Economic Research. 
25  This is only possible for derivatives where a premium is actually paid. This is not the case for all types 
of derivatives, notably interest rate swaps. 
EN 12   EN 3.2. The Financial Activities Tax 
Within its G-20 report which focuses on ma king the financial sector pay for public 
interventions, the IMF is proposing intr oducing a Financial Activities Tax (FAT)26. A 
Financial Activities Tax would be levied on th e sum of profit and remuneration of financial 
institutions. In practice, severa l countries already apply some ve rsions of Financial Activities 
Tax (see Section 5.4). 
The IMF proposes three alternat ive versions of the FAT: 
a. The addition method FAT. A broad version of the FAT would be to tax the sum of wages and profits defined in cash-
flow terms, i.e. with full expensing of inve stment and no deduction for financial costs. In 
other words, the base would be the prof it, minus capital formation, plus wages. 
As such, this tax base would proxy value-ad ded by taking the sum of cash-flow profit and 
remuneration for each tax period. It has been used in some countries as a surcharge applied to sectors that are fully or largely exempted from  VAT. In fact, such a system is also known as 
the addition method VAT. 
b. The rent-taxing FAT. The FAT can also be designed to tax rents only. Such a tax would be designed by taxing 
remuneration and cash-flow profit above a defined level of profit. The threshold for cash-flow 
profit could exclude 'normal profit' by the appli cation of either an Allowance for Corporate 
Equity (ACE, which allows the deduction of a notional allowance for equity) or a definition 
of profit which would include both real transactions and financial transactions
27. For 
remuneration, the threshold would be more arbitrary and could include a benchmarking 
exercise across sectors. 
c. The risk-taxing FAT. A third version of the FAT would tax excess return  due to unduly risky ac tivities. This version 
of the FAT is very similar to the rent-taxi ng FAT. The difference is that both exempt the 
normal profit either automatically (in the case of an R+F base) or by the application of a rate that is designed to be roughly si milar to the cost of debt-financing (in the case of ACE), while 
for the risk-taxing FAT, the threshold is in addi tion set at a level based on what is considered 
                                                
 
26  For the reasons explained in section 2.2, the idea of  a (profit) tax targeted on the financial sector was 
also floated in the European Commission's staff working document on innovative financing at a global 
level. The European Commission also pointed to taxation of bonuses, which represents a way of taxing 
economic rents if those are captured by managers via higher bonuses. 
27  A cash-flow corporate tax base can be of 3 different types: the R-base, the R+F base, or the S-base. The 
R-base corporate cash-flow includes real transactions only. That is  the difference between sales and 
purchases, excluding financial transactions (both in terms of revenues or expenses). The R+F base 
includes real transactions and non-equity financial transactions (i.e. borrowing and lending of funds). 
This is the sum of sales, borrow ed funds, interest received and lo an repayments, minus the sum of 
purchases, interest paid, debt repaid and lent funds. The S-base includes the ne t flow from corporations 
to shareholders. This is dividends paid plus the purchase of shares, minus the issue of new shares. See 
OECD (2007), Fundamental Reform of Corporate Income Tax , Paris. 
EN 13   EN as excessive return to (average) equity. Theref ore, parts of the rents could theoretically be 
untaxed as long as the return to e quity does not exceed this threshold. 
4. FINANCIAL TRANSACTIONS TAX 
4.1. Policy debate and options for an FTT 
A Financial Transaction Tax has been recently discussed and received attention from the 
European Parliament28, the European Council and a number of Member States. 
One reason for the interest in the FTT is that  the tax could address all three policy goals 
outlined above at the same time. In this se nse, the tax might create a triple dividend by 
improving market efficiency, act as a contribution of the financial sector  and raise substantial 
revenue. However, opponents argue that the F TT would not address the harmful effect of 
excessive risk-taking seen in the run-up to the re cent crisis since it does not address or only in 
an indirect way the underlying market failures e.g. the misali gned incentives in the financial 
sector. 
While there is large interest in achieving the goals outlined a bove by the implementation of an 
FTT, the debate has not yet focused on more de tailed issues, including the definition of the 
tax base, the tax rate, the taxable event and th e degree of coordination needed for a successful 
implementation of an FTT. 
4.2. The economics of FTT 
The rationale for the FTT is based on two assert ions about the tax. Firstly, it is seen to 
improve the functioning of financial markets through curbing harmful short-term speculation 
and reducing volatility by maki ng it less profitable. Secondly, it is expected to raise 
significant amounts of revenue, even if the tax rate is very low (e.g. 0.1 %)29. 
a. Effects on financial markets The FTT has - independent of its tax base definition - a number of economic effects. It is seen 
to be efficiency enhancing. This  argument is based on the idea that short-term and high speed 
trading is particularly harmful and speculativ e. Proponents of a financ ial transactions tax 
argue that the tax would reduce speculation, thereby linking trade more closely to the 
underlying fundamental economic mark et conditions and make fina ncial markets less volatile. 
The assumption behind this is that most short- term trading is either highly speculative or 
                                                
 
28  The European Parliament's Resolution of 10 March 2010 asks the Commission and Council to look at 
how the tax could be used to finance development cooperation and help developing countries to combat 
climate change, as well as how the tax could contribute to the EU budget. 
29  The FTT was also debated at the G-20 level. The IMF report on a fair and substantial contribution of 
the financial sector came to the conclusion that the tax should not be dismissed on the ground of 
administrative problems. However, the report voiced reservations as regards the advisability of a FTT 
for the purpose of the G-20 to make the financial sector pay a fair and substantial contribution towards 
paying for any burden associated with government interventions to repair the banking system. The IMF document argued that the tax might create side effects which could be detrimental to the functioning of 
markets. The Staff Working Document of the European Commission on “Innovative Finance at global 
level” came to similar conclusions. 
EN 14   EN based on technical trading which relies on histor ical asset prices but does not take into 
account the fundamental economic data.  
In reality, it turns out to be difficult to make  a meaningful and operati onal distinction between 
speculative and non-speculative transactions. It is impossible to disentangle harmful from 
beneficial transactions simp ly based on their time-horizon30. It has in particular been shown 
that the time horizon of an investment is no t necessarily a good predic tor for the degree of 
uncertainty or speculation underlying the potentia l yield of that investment. For example, 
short-term financial transactions are often rela ted to trade or other commercial transactions 
such as hedging. Under a broadly based FTT all short- and long-term transactions would be 
taxed, including transactions aimed at longer-term investme nts by pension and insurance 
funds. On the other hand, high frequency comput er trading would become more expensive 
with an increase in transaction costs. This could indeed be seen as an improvement if this is 
"excessive" trading with out economic function.  
One could interpret this as a private overinve stment in information retrieving which has no 
social value since it does not improve mark et efficiency as argued by Stiglitz (1989)31. 
However, short-term transactions also have th e function to allow arbitrage to equalize prices 
and find counterparts to trade with. Many empirical studies s how that the introduction of 
transaction taxes reduce the number of transactions, making it more difficult to find 
counterparts on markets and disrupting the ar bitrage function, leading to more price 
volatility32.  
The tax would also increase the cost of fina ncing for companies and governments via higher 
interest rates if the tax falls on the investor. This could be solved by exempting certain products from the tax. However, exempting prod ucts might also increase administrative costs 
by defining rules for exemption. It would also  contradict the argument that wide product 
coverage would be preferable in order to  reduce short-term speculation on all products. 
Given the complexity of some financial transa ctions, the impact of a transaction tax and the 
feasibility of such a tax remain largely uncerta in in many cases. Given this complexity, there 
may be considerable unintended effects and the possibilities of circumvention of the tax 
increase with the complexity of the operati on. An implementation of a tax would therefore 
also require a mechanism that deals with new fi nancial products which might be created in the 
future. Options could be to automatically add new financial instruments to the tax base in each country or to negotiate their taxation at th e EU-level. The risk of  tax avoidance exists 
also in geographical terms as some transactio ns might move to jurisdictions which do not 
apply the tax. 
                                                
 
30  It must be said that there is no agreement among economists on which operations may be considered as 
"speculative" and which ones may not. 
31  Stiglitz, Joseph (1989). Using Tax Policy to Curb  Speculative Short-term Trading. In: Journal of 
Financial Service Research, 3(2-3): 101-115. 
32  The Commission Staff Working Document and the IMF report to the G-20 discuss this issue in more 
detail. 
EN 15   EN Finally, the FTT is at variance with the requi rement of “production ne utrality”, as it changes 
relative input prices for business33. It is comparable to a sales tax and since it is levied on 
transactions rather than value added it is cu mulative. Products which are more frequently 
traded than others, e.g. the shares of large co mpanies with many shareholders will face higher 
tax burdens. 
b. Tax Incidence – Would the Financial Sector carry the burden? There is no empirical evidence on the real incidence of a FTT.  Transactions taxes are under 
the political and public spotlight  because they are perceived as  a contribution of the highly 
speculative financial institutions to the costs of the financial crisis. However, there is often a 
difference between the legal tax payer (legal incidence) and the economic agent who actually 
carries the economic burden of a tax (economi c incidence). In the context of a Financial 
Transactions Tax, the economic incidence of th e tax could fall either on traders, on stock 
exchanges, on companies and governments (via higher capital costs) or on final consumers 
via higher prices for financial services. For ev aluating the distributiona l aspects of the tax, a 
starting point is to analyse whether the tax is progressive (i.e. it taxes the rich proportionally more than the poor or less wealthy). Unfortunat ely, such empirical an alyses are currently 
unavailable, because of a lack of data. It is often argued that the tax could potentially have 
progressive properties since rich people are supposed to hold, and therefore trade, more than 
poorer ones. However, it cannot be taken for gr anted that this assumption necessarily holds 
since it also concerns the activiti es of financial intermediaries  such as pension funds, which 
also manage the savings of mi ddle- and lower-income earners.  
c. Revenue estimates 
For the FTT1, the Austrian Institute of Economic Research estimated the potential revenue of 
a general FTT for 2006. The Austrian figures sugge st that a general FTT rate of 0.1% could 
raise between USD 177 billion (EUR 145) a nd USD 467 billion (EUR 372) in Europe 
depending on the assumptions of the decrease in trading volume
34. The major part of these 
substantial amounts (between 80%  and 90% of the revenue, depending on the assumptions 
about the reduction of transactions ) would be collected from taxi ng transactions in derivatives 
on organised exchanges and transactions on ove r-the-counter (OTC) derivative markets. 
These estimates are based on the assumption that  the entire notional value of the traded 
derivatives would constitute the tax base and therefore, they must be considered with caution 
when assessing the actual size  of the tax base and revenues35. There are also doubts on the 
                                                 
33  This is the result of the production efficiency theorem. Since taxing production reduces total output, it is 
more efficient to tax output directly. (Diamond and Mirrlees (1971), Optimal Taxation and Public Production. The American Economic Review, Vol. 61) 
34  Note that Switzerland and Norway are included in this estimate . Values have been converted to EUR 
using the average exchange rate for 2006 of 1.2556 USD/EUR. 
35  An example for taxing the notional value of a deri vative is the following. An EU-based company has to 
pay a bill of USD 11million in 3 months and fears a devaluation of the Euro. The company wants to 
hedge the risk that the Euro falls below USD 1.10. It  acquires an option to buy USD at an exchange rate 
of 1.10 USD per Euro in 3 months. The price for this option is EUR 30,000. The value of the 
underlying is USD 11 million = EUR 10 million EUR. Assuming a very low tax rate of 0.01%, the tax 
payment would be EUR 1,000. Now compare the tax payment (EUR 1,000) to the price (EUR 30,000). 
If we define the tax payment in relation to the real cash-flow of buying the option as an effective tax 
rate, the effective rate is 3.3% in this example.  Now assume that the co mpany wants to hedge the 
EN 16   EN quality of the data for revenue estimates for derivatives. Table (5) gives the potential revenue 
for some EU countries. Given the above-mentione d open issues with the notional value as tax 
base, the estimates might be too high. 
Table (5): Estimated revenue from taxing shares, bonds, and derivatives (FTT1) for 
countries where data was available, EUR billion (2006), tax rate 0.1%  
 Country BE DE FR IT OE NL UK 
Projected Receipts 3.3 35.5 15.0 5.1 1.6 5.1 162.8 
Source: Schulmeister et al. (2008) 
Using FTT2 as the tax base and therefore not  taxing derivatives traded on OTC markets and 
exchanges, the remaining tax re venue from spot transactions on exchanges woul d be between 
USD 72 (EUR 57) billion and USD 80 (EUR 64 ) billion or 0.15% and 0.17% of global GDP. 
Table (6) shows the estimates for some European exchanges in more detail. 
Table (6): Estimated revenue from taxing shares and bonds (FTT2), EUR million (2008), 
tax rate 0.1%  
 Exchange Share 
Trading Bond 
Trading Revenue 
Shares Revenue 
Bonds 
Athens (EL) 77,282 28 62 0 
BME Spanish (ES) 1,639,054 4,650,178 1,311 3,255 
Borsa Italiana (IT) 1,019,484 175,458 816 123 
Bratislava SE (SK) 14 23,049 0 16 
Bucharest SE (RO) 1,601 46 1 0 
Budapest SE (HU) 20,877 1,613 17 1 
Bulgarian SE (BG) 1,261 125 1 0 
Cyprus SE (CY) 1,397 15 1 0 
Deutsche Börse (DE) 3,181,146 123,943 2,545 87 
Irish SE (IE) 55,695 24,944 45 17 
Ljubljana SE (SL) 1,589 255 1 0 
London SE (UK) 4,264,020 4,465,192 3,411 3,126 
Luxembourg SE (LU) 1,299 57 1 0 
Malta SE (MT) 48 435 0 0 
NASDAQ OMX Nordic Exchange 
(DK, EE, FI, IS, LV, LT, SE) 909,832 1,991,782 728 1,394 
NYSE Euronext (BE, FR, NL, PT) 2,999,217 33,099 2,399 23 
Prague SE (CZ) 29,880 22,685 24 16 
Warsaw SE (PL) 47,253 702 38 0 
Wiener Börse (OE) 71,177 800 57 1 
Total 14,322,128 11,514,404 10,025 8,060 
Source: World Federation of Exchanges and own calculations. 
Applying the tax only to bonds and stock trades without derivatives (FTT2) in the EU27 and 
Iceland exchanges, the revenue estimate is  around EUR 18 billion for 2008. The (simple) 
                                                                                                                                                         
extreme case that the Euro  drops below parity with the USD. The price would be only 5,000 EUR in 
this case given the low risk that this case will occur in the next three month. In this case, the tax base is 
USD 11 million = EUR 11 million. The tax payment would be EUR 1,100. This leads to an effective tax rate of 22% when relating the tax paid with the actual price paid. For the taxation of derivatives, the 
effective tax rate as defined above will therefore be different and depend on the characteristics of the 
contract. 
EN 17   EN assumptions made here are a reduction in tr ade volumes of only 30%  for bonds and 20% for 
shares and a tax rate of 0.1%. Table (6) shows the results for some European stock exchanges 
based on data from the World Federation of Ex changes (WFE). Note that some exchanges 
cover more than one country. The data does currently not provide a split to separate 
transactions between those count ries which share exchanges. 
Note that the use of backward looking data (2006 for FTT1 and 2008 for FTT2) might create 
too high revenue figures. Values might be lower in the future years, in particular due to 
underestimation of tax avoidance due to reloca tion of markets and migration to non-taxed 
products, depending on the feasibility of wide ge ographical coverage and the inclusion of a 
wide range of financial products and market s (exchange and over-the-counter) in its scope. 
Also, it is not clear whether a ll transaction volumes which are used in the estimates can 
actually be taxed according to the assumptions made. This is especially the case for the 
taxation of derivatives which account for the larg est part of the revenue estimates in FTT1. 
Furthermore, behavioural change s might depend on the characteri stics of individual markets. 
In conclusion, the revenue estimates have to be interpreted with caution36. 
The potential tax revenues woul d be very uneven from a geogr aphical point of view. Since 
investors from all over Europe and the worl d use the big financial centres the economic 
burden might be transferred at l east partly to these international investor s even though the tax 
would be collected in national markets. As figure 1 shows that uneven revenue is more 
pronounced for the FTT1 with derivatives include d. Note that data is not available for all 
Member States for these estimates. However, it is reasonable to assume that the revenue for most Member States not listed in the graph is ma rginal since their financial sectors are in most 
cases relatively small compared  to the countries included.  
                                                
 
36  For a critical review of revenue collection from transactions taxes see also Honohan and Yoder (2010): 
Financial Transactions Tax - Panacea, Threat, or Damp Squib? World Bank Policy Research Working 
Paper  No. 5230, March 2010.  
EN 18   EN Figure (1): Share in tax revenue of selected EU Member States (FTT1) 
UK
71.3%DE
15.5%FR
6.6%NL
2.2%IT
2.2%BE
1.4%OE
0.7%
 
Source: Schulmeister et al. (2008) 
The revenue estimates in Table (6) show that also for FTT2 most revenue is collected in 
larger European exchanges like the UK, Spain and Germany. In the EU, most revenues from 
the general financial transactions tax would be collected in countries with significant financial 
centres, while revenues in most other countries would be much lower. One might argue that 
while all countries introduce the tax and carry so me of its burden, the benefit of the tax in 
terms of revenue is located only in few countries  with large financial centres. However, the 
economic distortions in terms of reduction in tr ade volumes and risk of relocation of financial 
transactions due to the tax might  also be strongest in countries  with large financial centres.  
In conclusion, the uneven revenue collection mi ght be of less importance if the tax is an 
effective device to improve market efficiency to the benefit of all investors, domestic and 
foreign. If the goal of the tax is  to raise revenue, this woul d raise the question as to who 
should receive the revenue of such a tax and wh ether or not an agreement to share revenues 
internationally should be envisaged since othe rwise benefits will be distributed unevenly.  
4.3. Potential for unilateral introduction 
A prerequisite for a global as well as a unilateral introduction of a transaction tax at EU level 
is a relatively high degree of co -ordination of tax bases and ta x rates. The financial products 
covered by the tax as well as th e applicable tax rates should be the same in all countries 
concerned or at least vary only marginally. This  is necessary to reduce incentives for shifting 
to markets with lower tax rates and smaller pro duct coverage. There might also be a need to 
find solutions with financial centres outside Europe in order to reduce the migration of 
EN 19   EN transactions. Although some third countries use such taxes, the tax coverage is usually narrow 
and allows certain exemptions which might create possibilities for relocation37. Also, 
relocation might occur to financial centres outside the continent which do not have any 
transaction taxes. The strength of this effect depends on the level of the tax rate and the 
perimeter of the tax base. 
The Swedish experience with tr ansaction taxes which is descri bed in detail in Annex B shows 
that if evasion and relocation is easy and cheap, the market effects can be dramatic. However, 
legal security could be a means to decrease the potential for relocation. For example the UK 
stamp duty (Annex B) that covers only transact ion in securities of UK-registered corporate 
companies seems to be rather resistant to relocation. The risk for relocation might be 
mitigated for exchanges trading domestic stocks  and bonds; it is less clear whether this would 
also be possible for foreign stocks and bonds traded domes tically and derivatives. The 
increased use of registration duties could help to reduce this problem. 
Another possibility to reduce relocation incentives would be the use of differentiated tax rates. 
Tax rates could vary for different markets an d products according to their mobility. This 
would decrease the potential relocation bu t also reduce tax revenue and increase 
administrative costs. Also, it woul d be difficult to decide which tax rates should be applied to 
which product and the differentiated tax rates mi ght create distortions between the uses of 
different products. Also, if the FTT is seen as  a corrective device, differentiated tax rates set 
according to the mobility of financial products might undermine this function. 
Network externalities or agglomeration rents ar e often seen as reasons why relocation could 
be mitigated. The idea is that a very low tax rate would not lead to relocation given the 
advantage from concentration in one market pl ace. This argument has its merits, but it is 
difficult to evaluate in practical terms. The e ffect could be very dive rse for different product 
classes. Furthermore, while in the short-term  agglomeration might be considered as an 
immobile asset of a region, this is not nece ssarily the case once new investment opportunities 
and market structures evolve. 
The administrative costs of collecting a financia l transactions tax could be relatively low. 
Data from the United Kingdom (UK), where a stam p duty is levied, show  that the collection 
cost is only 0.21 pence per pound collected. The main  reason is that the vast majority of UK 
company shares are held in the CREST settleme nt system which automatically debits the duty 
when shares are transferred. In contrast to th at, for the income tax, the value is 1.24 pence and 
0.76 pence for the corporation tax38. However, this levy is a pure securities transactions tax, 
and does not tax a wider range of non-securities  transactions, such as lending or depositing, 
for which administrative costs might be higher. 
Legal aspects have to be considered as well. In  relation to the original proposal by Tobin for a 
currency transactions tax, likely legal obstacles need to be taken into account, regarding its 
compatibility with free movement of capital  and payments between Member States and 
between Member States and third countries.. Thes e concerns might also apply to derivatives. 
Similarly, the compatibility of such a levy with  Article XI of the General Agreement on Trade 
                                                 
37  See Annex B for country experiences from UK, Sw eden, Switzerland and Taiw an with transfer and 
transaction duties. 
38  See the Departmental Autumn Performance Report  2009 of HM Revenue & Customs available at: 
http://www.official-documents.gov.uk/document/cm77/7774/7774.pdf  
EN 20   EN in Services (GATS), which pr ovides that WTO Members cannot apply any restrictions on 
international transfer and payments for current transactions relating to their specific commitments, would have to be further assessed
39. The introduction of a tax on financial 
transactions might also require changes to Council Directive 2008/7/EC40.  
5. FINANCIAL ACTIVITIES TAX 
5.1. Policy debate and options for a FAT 
As mentioned above, the Financial Activities Tax has gained attention following the IMF 
report to the G-20 in which th ree options for the FAT have been discussed: the addition-
method FAT, the rent-taxing FAT and the risk -taxing FAT (correspon ding to FAT1, FAT2 
and FAT3 in the IMF report). 
5.2. The economics of FAT 
The rationale for the FAT is to target specif ically financial sector  activities, without 
intervening into the direct operation of financ ial markets. It can, how ever, be designed (rent- 
taxing FAT and risk-taxing FA T) in such a way as to im prove market efficiency and 
discourage high risk taking. 
a. Effects on financial markets Although alternative designs exist, a FAT e ssentially targets the sum of profit and 
remuneration of a financial institution. The FAT is  therefore not transac tion-based, but relies 
instead on items of the financial statements  of financial institu tions (i.e. profit and 
remunerations).  
The FAT should not be confused with the concep t of a bank levy. For example, one form of 
the bank levy which is currently discussed would be levied on leverage. This is based on the 
idea that leverage is an indicator for risk expos ure of an institution a nd its interconnectedness. 
The tax base of a bank levy is the balance sheet . The tax base for a FAT would be profit and 
remuneration and is taken from the profit and loss statement. The idea here is to tax the outcome of a company's activity in terms of profit and wages ra ther than levy a duty based on 
a structural indicator like leverage. 
The FAT's effects on financial activities may take se veral aspects. First, in terms of its effects 
on market structures and risk-taking, the addi tion method FAT would not  directly alter the 
markets structures where financial institutions are active since it taxes profits independently from how they are earned. In this sense, it does not discriminate be tween different products 
nor depend on the level of turnover, and hence brings no corrective mechanism per se. For all 
versions of the FAT, however, by making fina ncial services more expensive, it would 
decrease the size of the financial sector. 
                                                
 
39  See also the Innovative financing at a global level - Commission Staff Working Document SEC(2010) 
409, 1.4.2010 - on this issue. 
40  Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital 
(OJ L 46, 21.2.2008, p. 11). 
EN 21   EN The rent-taxing FAT that tax rents only would not  be distortive. If the financial sector earns 
economic rents and experiences a higher profitab ility due to its unique role in the economy, 
economic rents translate into highe r before-tax company profits. If  the policy goal is to reduce 
these rents in order to correct for the potentia lly distorted size and beha viour of the financial 
sector, a tax that falls direc tly on this profit is a solution. 
The risk-taxing FAT attempts to tax excess return due to unduly risky activities. Such a tax 
would directly target the harmful effects of excessive risk-taking . This would be done via 
applying a relatively high tax ra te (as to discourage risk) on returns above a defined level. 
This FAT therefore introduces some elements of progressivity. For capital, the interest rate on risk-free investments could be taken and increas ed by return on risk component. The latter is 
of course difficult to estimate. For wages, the average wages in other sectors could serve as a 
proxy. This would however not account for structur al differences in sectors which might lead 
to different wage structures in addition to potentially untaxed rents. In addition, this FAT 
cannot distinguish between high returns due to  unduly risky behaviour or due to skills and 
efforts. This makes the threshold somewhat arbitrary. 
Second, all versions of the FAT could be desi gned to be neutral vi s-à-vis financing and 
investment decisions, and hence not distort the activities of the financial sector while still 
reducing its size. This can be achieved by the application of either an Allowance for 
Corporate Equity (ACE) or a definition of prof it which would include both real transactions 
and financial transactions.  
Third, any version of the FAT could lead to differences in treatment between financial 
institutions subject to such a tax and quasi-f inancial institutions outside its scope. The 
implementation of a FAT should therefore cove r as large as possibl e range of financial 
institutions. The whole financial sector ind eed includes banks, credit card companies, 
insurance companies, consumer finance compan ies, stock brokerages, investment funds and 
some government sponsored enterprises. 
Fourth, all versions of the FAT can be seen as  tax on the profits from net transactions and 
other financial sector business. This is an important difference compared to the FTT which would tax gross transactions and have a cumulativ e effect. As such the tax take is independent 
of the risk characteristics of the product traded and instead a function of the number of times 
the product is traded. 
Fifth, in the technical design of the risk- and rent-taxing FAT important parameters deriving 
from "normal" profit rates or wage levels woul d need to be determined, which illustrates the 
potential practical complexity of such taxes. 
Finally, given the ongoing regulatory work, the assessment of the possible introduction of a 
FAT would have to take into account the cumula tive impact of the regulatory plus the tax 
changes. 
b. Tax Incidence – Would the Financial Sector carry the burden? 
There is no empirical evidence on the real incide nce of a FAT. However, the incidence of the 
addition method FAT when all remuneration and cash-flow profit is ta xed could possibly fall 
on the consumers of financ ial services. Indeed, in case the tax is shifted to the customer and 
EN 22   EN since there is no deduction for business consumers the tax burden could also partly fall on all 
users of financial services.  
Both the rent-taxing and the risk-taxing FAT provide less incentive to shift the tax to 
customers since the profit maximization c ondition would be unaffected and therefore 
marginal investments remain undistorted. 
c. Revenue estimates Turning to revenues, the potential of the FAT de pends on the type of FAT that is chosen and, 
obviously, on the assumptions. An appropriate estimation of revenues would require 
comprehensive firm-level data as with aggr egate data profits of some companies are 
compensated by losses of ot hers, blurring the picture
41. 
Still, using aggregate data and specific assumptions, the IMF reports that the tax base for the 
addition method FAT varies from 2.5% of GD P in Sweden to 8.4% of GDP in Ireland and 
even 23.2% of GDP in Luxembourg. The sample 's GDP-weighted average is 4.14% of GDP. 
For the Rent-taxing FAT and the Risk-taxi ng FAT, the GDP-weighted average would be 
1.78% and 0.79% of GDP.  
Hence, applying a low FAT rate of 5% and ex trapolating the results from the sample of 15 
Member States collected by the IMF (2010) – and representing 91% of  EU27 GDP – to the 
EU27 for the three methods provide broad or ders or magnitude for tax revenues of 
respectively EUR 25.9 billion, EUR 11.1 billion and EUR 4.9 billion. Table (7) gives an 
overview of the country values. 
                                                 
41  Profits are defined as gross operating surplus and mixed income in the financial intermediation sector. 
EN 23   EN Table (7): Revenue estimates for the various forms of FAT (based on 2008 GDPs),  
tax rate 5%  
Addition method FAT Rent-taxing FAT Risk-taxing FAT Member 
States Tax 
base 
% 
GDP Tax 
revenue 
% GDP Tax revenue mio 
EUR Tax 
base % 
GDP Tax 
revenue 
% GDP Tax revenue mio 
EUR Tax 
base % 
GDP Tax 
revenue 
% GDP Tax revenue 
mio EUR 
BE 4.2 0.2 724 1.8 0.1 310 1.5 0.1 259 
BG n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
CZ n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
DK 4.0 0.2 466 1.8 0.1 210 0.7 0.0 82 
DE 3.6 0.2 4,492 1.5 0. 1 1,872 0.5 0.0 624 
EE n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
IE 8.4 0.4 764 5.7 0.3 518 1.8 0.1 164 
EL n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
ES 3.5 0.2 1,905 1.7 0.1 925 0.9 0.0 490 
FR 3.3 0.2 3,215 0.9 0.0 877 0.8 0.0 779 
IT 3.6 0.2 2,822 1.6 0. 1 1,254 0.4 0.0 314 
CY n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
LV n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
LT n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
LU 23.2 1.2 456 15.3 0.8 301 5.7 0.3 112 
HU 3.6 0.2 190 2.0 0.1 106 0.9 0.0 47 
MT n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
NL 4.9 0.2 1,460 2.0 0.1 596 0.6 0.0 179 
OE 4.0 0.2 564 1.7 0.1 240 1.8 0.1 254 
PL n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
PT 4.8 0.2 413 2.6 0.1 223 0.5 0.0 43 
RO n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
SI n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
SK n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 
FI 1.9 0.1 175 0.9. 0.0 83 0.2 0.0 18 
SE 2.5 0.1 418 0.9 0.0 150 0.7 0.0 117 
UK 6.1 0.3 5,537 2.7 0. 1 2,451 1.1 0.1 998 
          
Sample  4.14 0.21 23,600.9 1.78 0.09 10,116,1 0.79 0.04 4,479.4 
EU27   25,920.7   11,110.5   4,919.7 
Source: IMF (2010), Financial Sector taxation. The IMF's Report to the G-20 and background material. 
Editors: S. Claessens, M. Keen and C. Pazarbasioglu. and own calculations. The estimates assume no 
behavioural response. For the rent-taxing and the risk-t axing FAT, the IMF takes 40% of the wage differential 
between the top 25% earners in the financial sector and the top 25% earners in other sectors. This 'surplus' is 
12% of wage costs. For the risk-taxing FAT, the benchmark for the return on average equity above which profit 
would be taxed is 15%. See IMF (2010) for other assumptions and details. Note that the IMF applies an R+F base by subtracting capital formation from profit. The EU27 figures are retrieved by taking the GDP-weighted 
average values of the sample for the tax base and applying them to EU27 GDP for 2008. 
For the 22 developed economies – representing a bout 62% of world GDP – considered in the 
IMF report to the G-20, a 5% rate of th e addition-method FAT would create revenue 
corresponding to an arithme tic average of 0.28% of GDP.42. Using the country level estimates 
for the share in GDP to calculate absolute figure s, this would translate into total revenue for 
the 22 countries of roughly EUR 75 billion for the addition-method FAT43. 
                                                 
42  IMF (2010). Financial Sector taxation. The IMF's Report to the G-20 and background material. Eds. S. 
Claessens, M. Keen and C. Pazarbasioglu. 
43  The revenue for other FAT versions would be EUR 35 billion for the rent-taxing FAT and EUR 10 
billion for the risk-taxing FAT. 
EN 24   EN In terms of their geographical distribution, the potential tax re venues would - by and large -  
mirror the share of Member States in the activiti es of the financial sector (which is more 
diversified than their share in trading places).  
Figures (2), (3) and (4) respectively present the distribution for the addition-method, rent-
taxing and risk-taxing FAT. For Member States  for which data is missing in table (7) are 
assumed to raise tax revenues in percentage of  GDP in the same proportion as the sample's 
GDP average. The sign (*) indicat es the countries concerned. 
Figure (2): Share in tax revenue of EU Member States (Addition-method FAT)  
UK 21.3%
DE 17.3%
FR 12.4%IT 10.9%ES 7.3%NL 5.6%IE 2.9%PL* 2.9%BE 2.8%OE 2.2%EL* 1.9%DK 1.8%LU 1.8%SE 1.6%PT 1.6%CZ* 1.2%RO* 1.1%
MT* 0.0%SK* 0.5%SI* 0.3% BG* 0.3%
LT* 0.3%
CY* 0.1%LV* 0.2%
HU 0.7%FI 0.7%
EE* 0.1%
 
 
EN 25   EN Figure (3): Share in tax revenue of EU Member States (Rent-taxing FAT) 
DE
16.8%
IT
11.3%ES
8.3%FR
7.9%NL
5.4%IE
4.7%
PL*
2.9%BE
2.8%LU
2.7%OE
2.2%PT
2.0%EL*
1.9%DK
1.9%SE
1.4%CZ*
1.2%RO*
1.1%HU
0.9%FI
0.7%SK*
0.5%SI*
0.3%BG*
0.3%LT*
0.3%LV*
0.2%
MT*
0.0%CY*
0.1%
EE*
0.1%
UK
22.0%
 
Figure (4): Share in tax revenue of EU Member States (Risk-taxing FAT) 
DE
19.4%
FR
15.1%
UK
14.1%IT
12.2%ES
8.5%OE
5.1%NL
4.6%RO*
1.1% CZ*
1.1%
PT
1.3%
IE
1.4%
FI
1.4%
DK
1.8%
EL*
1.9%
SE
2.6%
BE
2.7%
PL*
2.8%HU
0.8%SK*
0.5%LU
0.3%SI*
0.3%BG*
0.3%LT*
0.3%LV*
0.2%CY*
0.1%EE*
0.1%
MT*
0.0%
 
EN 26   EN 5.3. Potential for unilateral introduction 
Because it relies on items easily identified, a FAT is theoretical ly easy to introduce. The 
easiest version would be the addition method FAT. The othe r two versions require the 
determination of some normal or risk adjusted  return and wage payments which might create 
practical problems. A FAT could also add to  the existing incentives to shift profit via 
relocating profit or remuneration that derive from  differences in current CIT and PIT systems. 
The unilateral introduction of a FAT triggers re location and competitive disadvantage risks as 
in the case of the FTT. Nevertheless, given the nature of the base and the need for financial 
companies to generally operate for their basic activities where consumers reside, the risk of 
relocation can be assumed to be lower than in the case of the FTT. Technical developments 
may increase the mobility of the financial sector. For example, in the field of retail banking the development of internet banking ma y provide opportunities for avoidance. 
Another important issue is the inequality of tr eatment across sectors that a FAT would create. 
This issue may conflict with legislation or general tax pr actices in some countries. On the 
other hand, a FAT could arguably al so be seen as a tax surcha rge that aims at correcting 
inequalities of treatment acro ss sectors (e.g. VAT exemption). 
In principle, because it relies on existing items of the balance sh eet, both the technical 
difficulties and the administrative costs of imp lementing and collecting the FAT could be 
limited. However, given the different accounti ng rules in Member States a creation of a 
coherent framework might be difficult. 
Finally, in the context of the European Union, the compatibility with the VAT directive, in 
light of the existing jurisprudence (e.g. Case C- 475/03) would need to be  verified, given that 
its base proxies value added. Fo r the same reason, the FAT woul d require several adjustments 
to make it interact with the invoice-credit VAT. These adjustments, discussed by the IMF, 
include the absence of input VAT creditin g against the FAT and vice versa, border 
adjustments in the case of the addition method FAT, a mimicking of zero-rating for operations 
with clients outside the EU, and to mitigate the absence of crediting, a FAT rate that is lower 
than the standard VAT rate. Thes e are non-trivial technical issues. 
 
EN 27   EN  ANNEX A: TAXATION OF FINANCIAL TRANSACTIONS IN THE EU 
 
Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
Austria 
(12/7/2010) 1% Direct contributions of capital 
to an Austrian company - - - - 
Belgium 
(16/6/2010) - - EUR 1.7 per thousand euro 
worth of securities 
(maximum of EUR 500) Shares, bonds and other securities, 
whether traded on the Stock 
Exchange or not 0.15% Stamp duty for documents 
concerning bank transactions 
   0.6% Physical delivery of bearer 
securities. (Trade in short-term 
commercial papers is not taxable. 
Tax not applicable to securities 
issued upon formation of a company 
or an investment fund.)   
Bulgaria 
(5/7/2010)  - - - Transfer of shares of a limited 
liability company and the transfer of 
an existing business incur a notary 
fee - A notary fee is due on the 
transfer of shares of a limited 
liability company and the 
transfer of an existing 
business 
Cyprus 
(13/6/2010)  - EUR 102.52 plus 
0.6% on the 
nominal value of 
the share capital;  
- EUR 17.09 
allotment fees for 
the issue of the 
shares. Capital duties and allotment 
fees are payable on the 
authorized share capital and 
on the issue price of the 
shares - - 0.15% Transactions in, or 
transactions announced in, the 
Cyprus Stock Exchange 
Czech Republic 
(12/7/2010)  - - - -  Administration fees are 
payable on certain services 
rendered by various 
government bodies 
Denmark 
(16/6/2010)  - - - - - - 
Estonia - - - - - - 
 
EN 28   EN Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
(16/5/2010)   
 
Finland 
(1/7/2010)  - - 1.6% On the sales price, but only if the 
transfer is not made through the 
stock exchange. 
No transfer tax is due if shares of a 
foreign company are sold or if both 
the seller and the purchaser are non-
residents. However, this exemption 
does not apply if one of the parties 
to the transfer is a Finnish branch of 
a foreign bank or a foreign 
investment company. The tax is 
always payable on transfers between 
non-residents if the transferred 
shares are shares in a Finnish 
housing or real estate company.  Stamp duty is levied on 
certain documents and in 
connection with various legal 
transactions, such as 
promissory notes, bills of 
exchange and certain other 
certificates, and mortgage 
certificates. 
France 
(15/7/2010)  - In general, there is no capital 
duty or similar duty on the 
formation and expansion of 
capital of companies. 3%, with a maximum of 
EUR 5,000 For shares; only if the transfer is 
made by written deed executed in 
France - - 
   5% The transfer of shares in non-quoted 
SAs whose assets consist principally 
of immovable property and the 
transfer of shares in SARLs and 
interests or quotas in legal entities 
whose capital is not divided into 
shares (e.g. partnerships).  
The same rate applies to a purchase 
of an existing unincorporated 
business as a going concern. The 
transfer of shares or quotas in a 
foreign legal entity is exempt from 
registration duty in France, unless 
made by a written deed executed in 
France. 
   
 
EN 29   EN Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
 
 
 
Germany 
(1/7/2010)  - - - -  Minor fees are due upon 
registration of transactions in 
the Commercial Register. 
This concerns mainly the 
formation of a company, a 
change in the capital and 
reorganizations. 
Greece 
(10/5/2010)  1% − Any kind of contribution to 
the share capital on the 
formation of a company. 
− The increase in a company's 
capital, unless its the result 
of the compulsory 
revaluation of immovable 
property or of the 
capitalization of profits, 
reserves or provisions other 
than the share premium 
reserve. 
− The contribution of assets or 
working capital by a non-
resident company to its 
branch in Greece, if the non-
resident company has its seat 
or permanent establishment 
outside the EU. 
− Profit-sharing loans and 
loans used for a capital 
increase are immediately 
subject to the capital duty 
except when shares are 
issued. 
 
 0.15% On the proceeds from the sale of 
shares listed on the Athens Stock 
Exchange or on any other 
recognized stock exchange in the 
world. 2.4% On the issuance of loans 
between businesses or 
between individuals and 
companies and payment of 
interest on such loans. Loans 
granted by banks operating in 
Greece or abroad and interest 
payments on such loans are 
exempt 
 
EN 30   EN Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
 
 
 
 
Hungary 
(24/6/2010)  - - - Unless shares and other securities 
are acquired at an auction organized 
by a public body. - - 
   4% From 1 January 2010; on the 
acquisition of shares in real estate 
holding companies, provided that as 
a result of the acquisition the 
ownership of the transferee reaches 
or exceeds 75% of all outstanding 
shares.   
Ireland 
(25/3/2010)  - - - - 0%-9% Stamp duty on certain 
documents evidencing 
transfers of other forms of 
property than real estate 
Italy 
(2/3/2010)  - -   EUR 168 A registration tax is due on 
contributions of cash and 
assets (other than immovable 
property) in exchange of 
shares.  
This registration tax is also 
due:  
- on transfer of shares, bonds 
and similar securities based 
on contracts executed in Italy 
before a public notary 
- on contracts executed 
abroad or with different 
formalities when presented to 
an Italian registration office 
or an Italian court. 
     7% If on contributions of 
immovable property, the tax 
is proportional; the rate is 
 
EN 31   EN Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
usually 7% (15% for 
agricultural land) of the value 
of the property as indicated in 
the transfer deed. 
 
Latvia 
(21/6/2010)  - - - - - - 
Lithuania 
(28/6/2010)  - - - - - - 
Luxembourg 
(12/7/2010)  - abolished 01/01/2009 - - - - 
Malta 
(8/7/2010)  - - - - 2% Stamp duty on transfer of 
marketable securities (except 
when listed on the Malta 
Stock Exchange and inter 
vivos transfers of foreign 
marketable securities to 
persons resident in Malta 
effected through a local bank 
or a person holding an 
investment services licence. 
     EUR 210 to 
2,250 A nominal registration fee is 
payable upon registration of a 
company, depending on the 
amount of the authorized 
share capital. 
Netherlands 
(1/7/2010)  - - 6% The acquisition of shares in a real 
estate company (if the acquisition 
gives the acquirer at least one third 
of the subscribed share capital) - - 
Poland 
(7/7/2010)  0.5% Initial capital contribution to a 
newly registered company 
and on the transfer of an 
effective place of 
management or registered 
office from a non-EU country 
to Poland 1% Shares, bonds and other securities if 
the underlying rights are exercised 
in Poland - - 
 
EN 32   EN Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
 
 
 
 
 
 
Portugal 
(12/7/2010)  See Stamp duties  - - 0.4% A capital duty (in the form of 
stamp duty) is imposed on 
capital contributions to capital 
companies upon incorporation 
or any subsequent capital or 
equity increase. The duty is 
also levied on the transfer 
from a non-EU state to 
Portugal of the place of 
effective management and/or 
legal seat of a capital 
company with its legal seat 
and/or place of effective 
management in that third 
state. 
(Exemptions, for example, in 
respect of: 
- capital contributions, upon 
incorporation or capital 
increases, through the 
contribution of all the assets 
and liabilities of the 
contributor or of one or more 
branches of activity;  
- incorporation and capital 
increases of venture capital 
companies and holding 
companies (SGPS);  
- the change of the corporate 
purpose of a capital company;  
- capital increases paid in 
 
EN 33   EN Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
cash (following the ECJ 
decision in Optimus, C-
366/05)). 
Slovak Republic 
(24/6/2010)  - - - - - - 
Slovenia 
(18/6/2010)  - - - - - - 
Spain 
(1/6/2010)  1% On the contribution of capital 
to a company or a branch 
upon the formation or a 
subsequent increase of the 
subscribed capital, and on the 
liquidation and immigration 
of companies to Spain.  Normally not, except when transfer 
of unquoted shares of SAs and pre-
emptive rights to subscription of 
such shares by the intervention of a 
notary or a stockbroker if the 
transfer leads to the acquisition of 
control over a non-listed company in 
which 50% or more of its assets 
consist of Spanish-situs immovable 
property. - - 
Sweden 
(25/5/2010)  - - - - - - 
United Kingdom 
(14/6/2010)  - - - - 0.5% A stamp duty reserve tax 
(SDRT) is levied on certain 
transfers of shares and 
securities. 
 
 
 
 
 
 
 
  
 
 
 
 
 
EN 34   EN Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
 
 
 
 
 
 
  
 
Non-EU countries       
Switzerland 
(1/6/2010)  1% A 1% federal stamp duty 
(Emissionsabgabe) is payable 
by resident companies (AGs, 
GmbHs, KAGs and 
cooperatives) upon the 
issuance of shares or other 
participation rights and the 
increase in their nominal 
value to the extent that the 
share capital exceeds CHF 1 
million. The taxable amount 
is equal to the total amount 
contributed to the company or 
the value of the shares issued, 
whichever is higher.  
Qualifying venture capital 
companies are exempt from 
the duty. In addition, certain 
types of transactions are 
exempt, including: 
- participations taken or 0.15% (Domestic 
securities), 0.3%(Foreign 
securities) A transfer tax (Umsatzabgabe) is 
levied on the transfer of domestic or 
foreign securities where one of the 
parties is a Swiss security broker. 
Swiss brokers include banks and 
bank-linked financial institutions as 
defined by Swiss banking law. In 
addition, companies that own 
taxable securities of a book value in 
excess of CHF 10 million qualify as 
security brokers.  
A broker who acts as a party to the 
transaction must pay one half of the 
transfer tax for himself and another 
half on behalf of each party who is 
not a broker. If the broker merely 
acts as an intermediary, he is only 
required to pay one half of the 
transfer tax on behalf of each party 
who is not a broker. If a Swiss 
security broker deals at a foreign   
 
EN 35   EN Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
increased in connection with 
mergers, changes of legal 
structure, spin-offs or 
transfers of corporate seats 
from abroad to Switzerland; 
- participations in 
cooperatives to the extent 
they do not exceed CHF 1 
million in total; and  
- participations formed by the 
use of share premium reserves 
of AGs if the company can 
prove a previous payment of 
the duty for these 
contributions. 
If at a later moment the 
requirements for an 
exemption no longer exist, 
stamp duty becomes due on 
the remaining part of the 
existing participation right.  
No stamp duty is due upon 
formation and expansion of 
capital by partnerships, 
associations and foundations. stock exchange in securities that are 
subject to Swiss transfer tax, the part 
of the tax allocated to the other party 
to the transaction is not levied.  
The taxable base is equal to the 
consideration paid; if there is no 
consideration, the ta xable base is the 
fair market value of the security. 
The duty is levied at a rate of 0.15% 
for domestic securities and 0.3% for 
foreign securities.  
Eurobonds, other bonds 
denominated in a foreign currency 
and the trading stock of professional 
security brokers are exempt. Certain 
types of transactions are exempt:  
- initial purchase of shares in 
resident companies, including those 
purchased through a bank or a 
holding company (subject to stamp 
duty upon the issuance);   
- the transfer of an option to acquire 
shares;  
- the redemption of securities for 
cancellation;  
- the initial purchase of bonds issued 
by foreign debtors and shares in 
foreign companies not denominated 
in Swiss currency;  
- the transfer of foreign money 
market papers; and  
- the transfer through security 
brokers of foreign bonds whether in 
Swiss or foreign currency between 
two foreign parties. 
 
 
 
EN 36   EN Country 
(date of last 
update)  Capital duty 
(on the creation of, or increase in, share capital) 
 Transfer tax Stamp or other duty 
 Tax rate Tax base Tax rate Tax base Tax rate Tax base 
 
 
 
 
 
 
  
 
 
 
 
 
Taiwan 
(1/4/2010)    0.3% of the transaction 
price for a transaction in 
shares issued by a company; 
and 0.1% of the transaction 
price for a transaction in 
corporate bonds and other 
government approved 
marketable securities such 
as certificates issued by 
securities investment trusts. 
Since 1998, a stock index 
futures transaction tax is 
imposed on both parties to 
the transaction based on the 
contracted amount. The 
current transaction tax is 
levied per transaction at a 
rate of not less than 0.01% 
and not more than 0.06%, 
based on the value of the 
futures contract. Securities transactions tax is levied 
on all securities on the stock 
exchange, except government 
bonds. Securities tr ansaction tax on 
bank debentures and corporate 
bonds is not imposed from 1 January 
2010 to 31 December 2016. 
   
Source: IBFD "European tax survey" database. Date: 22/07/2010 
 
 
EN 37   EN ANNEX B: COUNTRY EXPERIENCE  
B.1 TRANSFER TAXES AND STAMP DUTIES  
United Kingdom  
The UK stamp duty on transfers of securiti es consists of two instruments: (1) Stamp duty 
(charged on instrument s of transfer) and (2) Stamp Duty Reserve Tax  (SDRT) (charged on 
underlying agreements to transfer securitie s where an instrument is not executed). 
The two go hand in hand when consid ering transaction taxes on shares.  Stamp Duties  in the 
UK are collected on documents used to effect the sale and transfer of ow nership in shares and 
other securities of UK-based comp anies. In order to collect du ties on transactions carried out 
through electronic share dealing systems, the Stamp Duty Reserve Tax (SDRT)  was 
introduced in 1986. Stamp duties are levied on  the underlying value of the transferred good. 
The standard rate is currently 0.5%.  
Revenue from duties on the transfer stocks a nd shares also augmented over the last decade. 
After the economic downturn in 2001-02 revenue d eclined for two years in a row. From 2004-
05 onwards revenue steadily increas ed despite the fact that the tax rate remained unchanged at 
0.5% in this period. There are th ree main reasons for this deve lopment. Firstly, share prices 
increased significantly in recent years as a consequence of the economic boom. Secondly, 
volume of traded shares also in creased since the number of in corporated companies increased. 
Lastly, turnover also augmente d since shares have become important products for medium- 
and short-term investments. However, revenue declined also for this  category in 2008-09. The 
reasons are the reduction in tran sactions volumes as well as si gnificantly lower stock prices 
due to the financial crisis. This observation s uggests that revenue fr om stamp duties is pro-
cyclical with economic activity. In fact, revenue  from stamp duties on tr ansfers of financial 
assets was more than 30% lowe r in 2008-09 compared to 2007-08. 
The SDRT taxes transactions in shares where no instrument of transfer is executed and which 
are therefore outside the scope of  the "standard" Stamp Duty. In th is sense, it is a transaction 
tax, levied on agreements to transfer chargeable  securities while the "standard" Stamp Duty is 
charged upon documents. SDRT accounts for the majority of revenue collected on share 
transactions effected through the UK's Exchanges. On aver age almost 90% of revenues 
actually stem from the SDRT. Ta ble (B.1) shows the revenue data for both types in the second 
and third column44. The fourth column shows the total revenue from the two sources. The 
peak is in 2000-01 just before the end of th e Internet bubble. Columns 5 and 6 show the tax 
revenue in relation to total tax revenue and GDP. The Stamp Duty was on average about 0.7% 
of total tax revenue. In terms of GDP and tota l tax revenue the highest values have been 
reached during the boom years at the end of th e last century, notably in 2000-01. For 2008-09 
the value is back to the level of the mid 1990ies which is around 0.2% of GDP. 
                                                 
44  The split between the two levies is only availabl e from 2001 onwards. Note that small differences 
between values single and sums occur due to rounding when converting revenues in Sterling Pound to 
Euro. 
 
EN 38   EN Both, SDRT and standard Stamp Duty are levi ed on share transactions in UK incorporated 
companies currently taxed at 0.5% of the purchas e price of shares. It is charged whether the 
transaction takes place in the UK or overseas, a nd whether either party is resident of the UK 
or not. Securities issued by companies overseas ar e not taxed. This means that the tax is paid 
by foreign and UK-based investor s who invest in UK incorporated companies. To put it 
differently, the tax is connected to the location of headquarters.  
Table (B.1): Revenue from stamp duties on stocks and shares  
and other liable securities in the UK 
Year SDRT Standard  
Stamp duty Stamp Duties
Total Revenueover Total 
Tax Revenueover GDP 
1995-96 n.a. n.a. 1,810 0.59 0.20 
1996-97 n.a. n.a. 1,966 0.60 0.20 
1997-98 n.a. n.a. 3,033 0.73 0.25 
1998-99 n.a. n.a. 3,696 0.79 0.28 
1999-00 n.a. n.a. 5,617 1.10 0.40 
2000-01 n.a. n.a. 7,383 1.26 0.46 
2001-02 4,218 367 4,586 0.77 0.28 
2002-03 3,669 455 4,124 0.69 0.24 
2003-04 3,280 418 3,698 0.65 0.22 
2004-05 3,454 548 4,001 0.64 0.23 
2005-06 4,105 961 5,067 0.77 0.28 
2006-07 4,767 745 5,511 0.77 0.28 
2007-08 5,372 716 6,091 0.82 0.30 
2008-09 3,673 349 4,022 n.a. 0.22 
     in m Euro in % in % 
Source: HM Revenue and Customs and own calculations  
Given the existence of the tax, one should ob serve that investors discount higher future 
transaction costs when trading shares. These cost s should be capitalized in lower share prices. 
In fact, empirical studies show that the stam p duty influences the share prices negatively. 
More frequently traded shares  are stronger affected than lo w-turnover shares. Therefore the 
tax revenue capitalizes at least to some extent  in lower current share prices. For firms which 
rely on equity as marginal source of finance this may increase capital costs since the issue 
price of new shares would be lower than wit hout the tax. Currently, there are no estimates on 
the effects on trading volumes and price volatil ity of the stamp duties in the UK. Given results 
from empirical studies on the e ffect of transaction costs on trade volumes it is likely that 
Stamp Duties reduce trade volumes significantly. Whet her or not this increases price volatility 
is disputed, however, more recent studies te nd to find a positive correlation between trade 
volumes and price volatility. 
While it is possible to avoid stamp duty by execu ting and retaining the in strument outside the 
UK, in practice the need to get the company's sh are register changed to show the name of the 
new owner, combined with the restriction on uns tamped instruments being given in evidence 
or used for any purpose whatever , means that most instruments of transfer are presented for 
stamping. 
Stamp duty reserve tax is difficult to avoid beca use the vast majority of UK company shares 
are held in the CREST settlement system whic h automatically debits SDRT when they are 
transferred. Nevertheless, there are tw o mechanisms to avoid SDRT legally: 
 
EN 39   EN American depositary receipts (ADRs)   
Many UK companies have ADR programme s which enable them to market 
themselves in the US. Shares are issued to a US depositary bank which issues 
"American depositary receipts" (ADRs) in resp ect of them. It is the receipts rather 
than the underlying shares that are traded on the US markets. Such trading is currently 
free from standard 0.5% SDRT transfer charge s, but, to compensate, there is a charge 
instead (only paid once at the higher rate of  1.5%) when the shares are issued to the 
depositary bank. Placing shares into an ADR system is not regarded as avoidance. 
Exchange Traded Fund (ETF)  
An overseas collective investment scheme th at lists on a UK exchange (ETF) currently 
qualifies for exemption from SDRT provide d that it is not centrally managed and 
controlled in the UK or has a UK share re gister. The exemption was introduced in 
2007 to encourage overseas ETFs to list in the UK and use of these schemes is thus legitimate. However, owners of an ETF sh are do not legally own the shares in the 
fund. If investors want to ha ve voting rights the ETF canno t be used to avoid stamp 
duty.  
Sweden 
In the 1980s Sweden experienced strong growth of the financial sector
45. This was 
accompanied by significant increases in the salari es of professionals in this sector. It was 
argued that the financial sector's contributi on to the economy and the society was small 
compared to the resources it used. Furthermore, excessive financial transactions were seen as 
destabilizing the economy and as promoting disproportionate wage differentials between 
sectors. The latter point was politically of gr eat importance. Despite the resistance of the 
Ministry of Finance, Sweden in troduced a 50 basis points tax on th e purchase or sa le of equity 
securities in January 1984. A round trip transaction (purchase a nd sale) resulted therefore in a 
100 basis points tax. The tax applied to all equ ity security trades in Sweden using local 
brokerage services as well as to stock options . The fact that only local brokerage services 
were taxed is in the literature seen as th e main design problem of the Swedish system. 
Avoiding the tax only required us ing foreign broker services. In  July 1986, the tax rate was 
increased to 100 basis points. In  1987, the tax base was extended  and half the normal rate was 
also applied to transactions between dealers. 
In January 1989, the tax base was widened agai n and a tax on fixed-income securities was 
introduced. The tax rate was cons iderably lower than on equiti es, as low as 0.2 basis points 
for a security with a maturity of  90 days or less. On  a bond with a maturity  of five years or 
more, the tax was three basis points. Only 15 months later, on 15 April 1990, the tax on fixed-
income securities was abolished. In January 1991 the rates on the remaining taxes were cut by 
half and by the end of the year, they  were also abolished completely. 
There are different reasons for the abolishment of the tax. First of all, the revenues from the 
taxes were disappointing. The revenues from the tax on fixed-income securities were expected 
                                                 
45  The description of the Swedish experience is based on Umlauf (1993) and Campbell and Froot (1993). 
Sweden levied transaction taxes on stock exchange and stock options, fixed interest securities and the 
connected derivatives. 
 
EN 40   EN to amount to 1,500 million Swedish kroner pe r year, but the average was only around 50 
million a year. Furthermore, since trading volumes fell, the capital gains tax became less and less applicable and revenue declined. The increa se in revenue from equity transaction taxes 
was almost entirely offset by this reduction in  capital gains taxes. The net budget effect was 
accordingly close to zero. An additional reason for the decline in revenue from capital gains 
taxes was the decline in share pr ices that accompanied the intr oduction of the transaction tax. 
The day the tax was announced, share prices fell by 2.2%. Taking into account possible trading based on insider information in the week s before the official announcement, the price 
decline is estimated to have amounted to 5.35%.  These declines were in line with the net 
present value of tax payments on future trades . Investors discounted th e future payments and 
prices for equity decreased driving up capital costs accordingly. 
Next to the low revenue generated from the tax, relocation became a serious problem in 
Sweden. 60% of the trading volume of the eleven  most actively traded Swedish share classes 
moved to the UK after the announcement in 1986 that the tax rate would double. 30% of all 
Swedish equity trading moved offshore. By 1990, more than  50% of all Swedish trading had 
moved to London. Foreign investors reacted to the tax by moving their trading offshore while 
domestic investors reacted by reducing the number of their equity trades. 
Even though the tax on fixed-income securities was much lower than that on equities, the 
impact on the traded volume was much more  dramatic. During the first week after the 
introduction of the tax, the volume of bond tr ading fell by 85%, even though the tax rate on 
five-year bonds was only three basis points. The volume of futures trading fell by 98% and 
the options trading market disa ppeared. Trading in money mark et securities, which faced a 
tax as low as 0.2 basis points, fell by 20%. This reaction was due in large part to the existence 
of a wide variety of non-taxed substitutes. On ce the taxes were eliminated, trading volumes 
returned and grew substantially in the 1990s. 
Switzerland 
A prominent example of a transfer tax outs ide the EU is Switzerland. A transfer tax 
(Umsatzabgabe ) is levied on the transfer of domestic or foreign securities where one of the 
parties is a Swiss security broker. Swiss br okers include banks and bank-linked financial 
institutions as defined by Sw iss banking law. In addition, companies that own taxable 
securities of a book value in excess of CH F 10 million qualify as security brokers.  
A broker who acts as a party to the transaction must pay one half of the transfer tax for 
himself and another half on behalf of each party who is not a broker. If the broker merely acts 
as an intermediary, he is only required to pay one half of the transfer tax on behalf of each 
party who is not a broker. If a Swiss security  broker deals at a fore ign stock exchange in 
securities that are subject to Swiss transfer tax, the part of the tax allocated to the other party to the transaction is not levied. 
The taxable base is equal to the consideration paid; if there is no c onsideration, the taxable 
base is the fair market value of the security. Th e duty is levied at a ra te of 0.15% for domestic 
securities and 0.3% fo r foreign securities. 
Eurobonds, other bonds denominated in a fore ign currency and the trading stock of 
professional security brokers are exempt. Ce rtain types of transactions are exempt:  
 
EN 41   EN - initial purchase of shares in resident co mpanies, including those purchased through a 
bank or a holding company (subject to stamp duty upon the issuance);  
- the transfer of an opti on to acquire shares;  
- the redemption of securities for cancellation;  
- the initial purchase of bonds issued by foreign debtors and shares in foreign 
companies not denominated in Swiss currency;  
- the transfer of foreign m oney market papers; and  
- the transfer through security  brokers of foreign bonds wh ether in Swiss or foreign 
currency between two foreign parties. 
The revenue of the Swiss tran sfer tax was CHF 1.9 billion CH F in 2007. This corresponds to 
0.37% of GDP. 
Taiwan 
An example for a country with transactions ta xes outside Europe is Taiwan. The securities 
transaction tax is imposed upon gross sales price of  securities transferred and the tax rates are 
0.3% for share certificates issued by comp anies and 0.1% for corporate bonds or any 
securities offered to the public which have be en duly approved by the government. However, 
trading of corporate bonds and financial bonds issued by Taiwan ese issuers or companies are 
temporarily exempt from STT beginning 1st January 2010. The Taiwanese government argued 
this "would enliven the bond market and enha nce the international competitiveness of 
Taiwan’s enterprises"46. The legal taxpayer is the seller of the securities and tax is collected 
by the broker or sales agent or the transf eree in cases of direct transactions.  
Since 1998, Taiwan also levies a stock inde x futures transaction tax is imposed on both 
parties to the transaction based on the contracted amount. The curre nt transaction tax is levied 
per transaction at a rate  of not less than 0.01% and not mo re than 0.06%, based on the value 
of the futures contract. Revenue from the securi ties transaction tax and the futures transaction 
tax was about EUR 2.4 billion in 2009. The major pa rt of this revenue came from the taxation 
of bonds and stocks (96.5%). The taxation of stoc k index future shares was 3.5%. In total, this 
corresponds to 0.8% in  terms of GDP. 
                                                 
46  See http://www.ey.gov.tw/ct.asp?xItem=65822&ctNode=1334&mp=11 for the press release.  
 
EN 42   EN B.2 MEMBER STATES ' EXPERIENCES WITH FAT  ELEMENTS47 
Denmark 
Denmark introduced in 1990 a duty on wage and salary costs ( Lønsumsafgift48) for businesses 
engaged in certain activities that are exempted  from VAT. The tax base is generally the sum 
of labour costs and taxable profit49. For several sectors, includi ng financial activities, the tax 
base is defined as labour cost s plus a supplement of 90%.  
The general tax rate is 3.08%. Specific rates appl y to various sectors. For financial services, 
the rate is 5.08% of labour cost s plus an additional 4.5% of 90% of labour costs (i.e. an 
effective rate of 9.13% (5.08+ 90%*4.5%). This rate will be increased to 10.5% but this 
measure will not be effective before 2013. 
In 2008, the annual revenues amounted to DKK 4,668.7 million (i.e. about EUR 650 million) 
or 0.26% of GDP. About 70% of this amount would be raised from the financial sector (IMF, 
2010). 
France 
France introduced in 1968 a payroll tax ( taxe sur les salaires50) which is levied on employers 
who are not liable for VAT or wh o have not been liable for VAT  on at least 90% of their 
turnover during the previous year. Those include  bank and insurance companies. The tax base 
is defined as gross remunerations, prior to the deduction of employee's national insurance 
contribution, including benefits in ki nd. The measure is th erefore not a FAT per se but the 
underlying concept is the same. 
For employers who are partly liable to VAT, the payroll tax is due  in proportion of the 
exemption. Remunerations paid by public administ rations are exempted as long as this does 
not create distortions in competition. Remunerati ons paid to apprentices are fully or partially 
exempted, depending on the number of employees. A limited number of remunerations are also exempted. Those are mainly paid in the co ntext of training of wo rkers and incentives to 
hire unemployed. Businesses with a turnover th at does not exceed a defined threshold (EUR 
80,000 for sales of goods and EUR 32,000 fo r services) are also exempted. 
The tax rate is 4.25%. It is increased to 8.50% for indi vidual annual pay between EUR 7,491 
and EUR 14,960 and to 13.60% for individual annual pay above EUR 14,960. There is a 
reduced rate of 2.95% for overseas  territories. The tax is not due  if its annual total amount is 
under EUR 840. If the tax due is between EU R 840 and EUR 1,680, the tax is reduced by an 
amount representing ¾ of the difference betw een EUR 1,680 and the tax originally due. Non-
profit associations are eligible to  a tax credit of EUR 5,890 per year. 
The payroll tax is deductible from the corpor ate income tax or the personal income tax. 
                                                
 
47  The information in this section is retrieved from the Taxes in Europe database. 
48  Covered by the Law on tax o labour costs (lov om afgift af lønsum mv.). 
49  In case of losses, these are deducted from the labour costs. The system is therefore symmetric. 
50  Covered by articles 231 to 231 bis R and 1679, 1679A and 1679 Bis of the General Tax Code. 
 
EN 43   EN In 2008, the annual tax revenues amounted to EU R 11.3 billion. This is about 0.55% of GDP. 
About 85% of this amount would be levi ed from financial institutions (IMF, 2010). 
Italy 
Italy introduced in 1997 a regi onal tax on produc tive activities ( Imposta Regionale sulle 
Attività Produttive – IRAP)51. This regional tax is applied to  taxpayers engaged in commercial 
business. The tax base is the value of the ne t production, which is accounting profit plus most 
remuneration. Several exemptions apply for un it trusts, pension funds, European Economic 
Interest Groupings, and some small taxpayers. Deductions are allowed for contributions for 
labour insurances, expenses related to junior clerks, disable persons and R&D. In addition, 
there is a EUR 1,850 deduction for each employee (with a maximum of five) to enterprises 
with income below EUR 400,000 and certain re gions apply a EUR 9,200 deduction for each 
employee. The base is allocated across regi ons based on the number of workers in each 
region. 
The basic rate is 3.90% and it can  be increased by regions up to 1 percentage point. However, 
since 2008, the rates increased by regions must  be multiplied by a coefficient of 0.9176. In 
2008, the annual tax revenues amounted to EUR 36 billion or 2.3% of GDP. 
                                                 
51  Covered by D. Lg. N446 of 15  December 1997 and L n° 244/2007.