Opinion of the European Central Bank of 19 June 2013 on a special tax on credit institutions (CON/2013/44)
Date: 2013-06-19
Institutions: European Central Bank
Subjects: Cyprus, bank deposit, credit institution, financial stability, interest, national law, tax

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 19 June 2013 

on a special tax on credit institutions 

(CON/2013/44) 

Introduction and legal basis 

On 14 May 2013, the European Central Bank (ECB) received a request from the President of the House 

of Representatives of the Republic of Cyprus for an opinion on a proposed amendment to the Law on the 
imposition of a special tax on credit institutions1 (hereinafter the ‘draft law’). 

The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 

Functioning of the European Union and the sixth indent of Article 2(1) of Council Decision 98/415/EC of 

29 June  1998  on  the  consultation  of  the  European  Central  Bank  by  national  authorities  regarding  draft 
legislative provisions2, as the draft law relates to rules applicable to financial institutions insofar as they 

materially  influence  the  stability  of  financial  institutions  and  markets.  In  accordance  with  the  first 

sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council 

has adopted this opinion. 

1.  

Purpose of the draft law 

The  draft  law  aims  to  create  an  incentive  for  credit  institutions  to  lower  the  interest  rates  offered  on 

certain  deposits. The amendments  to  Section  4  of the  Law  on  the imposition  of  a  special  tax on  credit 

institutions provide for the following: 

1.1  An  increase  in  the  total  special  levy  on  deposits  from  0.15%  to  an  aggregate  of  0.75%,  by 

providing for an additional special levy of 0.6% on deposits held in euro by credit institutions in 

Cyprus. 

1.2  The additional special levy will be payable only in relation to new deposits made or renewed after 

1 July 2013, provided such deposits earn annual interest which exceeds the rate of interest of the 

marginal lending facility as determined by the ECB, increased by a margin of 1.5%. 

1.3  The additional special levy will be payable by the credit institutions to the Inland Revenue of the 

Republic  of  Cyprus  within  30  days  after the  end  of  each  quarter  starting  from  31  October  2013. 

Within the same time period, each credit institution should submit a declaration with respect to all 

deposits made or renewed with interest which exceeds the maximum interest as specified above.  

1  
2  

Law 84(I)/2011.  
OJ L 189, 3.7.1998, p. 42. 

 
 
 
 
                                                 
ECB-PUBLIC 

2. 

General comments 

2.1  As the ECB has stated in earlier opinions3, taxes on financial institutions should be considered in 

relation  to  the  dual  objective  of  ensuring  a  more  equitable  distribution  of  the  costs  arising  from 

their  potential  failure  between  taxpayers  and  the  financial  sector  and  of  addressing  the  risks  that 

they pose. 

2.2  The ECB notes that the purpose of the draft law differs from that of the law being amended, which 

was initially enacted for the purpose of: (a) contributing to the Government’s short-term budgetary 

targets;  and  (b)  financing  the  Independent  Financial  Stability  Fund  within  the  bank  resolution 

framework  as  part  of  a  fiscal  buffer  for  banking  sector  risks.  Since  the  draft  law  creates  an 

incentive for credit institutions to lower the interest rates offered on deposits, the ECB recommends 

a comprehensive impact assessment of the proposed measure, to ensure that the public benefit from 

its imposition will outweigh any potential negative implications for banks, their customers and the 

economy,  particularly  in  view  of  the  circumstances  specific  to  Cyprus  following  the  resolution 

measures employed recently in the country’s banking sector. 

2.3  As  the  ECB  has  previously  pointed  out4,  in  line  with  the  European  Council’s  conclusions5, 

Member States should introduce systems of levies and taxes on financial institutions to ensure fair-

burden sharing and to set incentives to contain systemic risks. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 19 June 2013. 

[signed] 

The President of the ECB 

Mario DRAGHI 

3  

4  
5  

See  Opinions  CON/2010/62,  paragraph  3.2  and  CON/2011/29,  paragraph  2.1.  All  ECB  opinions  are  published  on  the 
ECB’s website at www.ecb.europa.eu. 
See Opinion CON/2011/29, paragraph 3.1. 
See conclusions of the European Council of 17 June 2010, p. 6, paragraph 16. 

2