Opinion of the European Central Bank of 16 December 2019 on taxes on assets of certain financial market participants and additional corporate income taxes on certain credit institutions (CON/2019/44)
Date: 2019-12-16
Institutions: European Central Bank
Subjects: Lithuania, business tax, corporation tax, credit institution, distribution of the tax burden, financial stability, tax, tax system

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK  

of 16 December 2019  

on  

taxes on assets of certain financial market participants and additional corporate income taxes 

on certain credit institutions 

(CON/2019/44) 

Introduction and legal basis  

On  11  October  2019,  a  draft  legislative  proposal  on  taxes  on  assets  of  certain  financial  market 

participants was introduced into the Lithuanian Parliament (the ‘draft law on financial market participants’ 

asset tax’). 

On 6 December 2019, a draft legislative proposal amending the Law on corporate income tax imposing 

an additional tax on profits of banks and credit unions was introduced into the Lithuanian Parliament (the 

‘draft law on credit institutions’ income tax’). The draft law on financial market participants’ asset tax and 

the draft law on credit institutions’ income tax are collectively referred to as the ‘draft laws’.  

The ECB has decided to deliver an own initiative opinion on the draft laws, since it has not been formally 

consulted on the draft laws by the Lithuanian authorities.  

The ECB’s competence  to deliver  an  opinion is  based on the second  subparagraph  of Article 127(4)  of 

the Treaty on the Functioning of the European Union in conjunction with the sixth indent of Article 2(1) of 
Council Decision 98/415/EC1, as the draft laws concern 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 laws  

Draft law on financial market participants’ asset tax 

1.1. 

The  draft  law  on  financial  market  participants’  asset  tax  would  impose  an  obligation  on  certain 

financial  market  participants  to  pay  a  monthly  tax  of  0.03  %  of  the  value  of  financial  market 

participants’ assets, subject to certain exemptions, deductions and exceeding a certain threshold.  

1.2. 

Under  the  draft  law,  the  tax  applies  to  banks,  branches  of  foreign  banks  licensed  in  Member 

States of the European Union (EU) and the European Economic Area (EEA) that are established 

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Council  Decision  98/415/EC  of  29  June  1998  on  the  consultation  of  the  European  Central  Bank  by  national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
 
 
                                                           
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in Lithuania, branches of foreign banks licensed in non-EU/EEA countries that are established in 

Lithuania, credit unions, central credit unions, consumer credit lenders and credit lenders.  

1.3. 

According  to  the  draft  law,  the  tax  base  for  banks,  branches  of  foreign  banks,  central  credit 

unions  and  credit  unions  will  be 

the  average  annual  assets  excluding 

funds  at 

the 

Lietuvos bankas,  funds  lent  to  the  State,  cash,  tangible  and  intangible  assets,  own  funds 

calculated  as  the  simple  average  of  the  value  of  assets  at  the  end  of  four  quarters  of  the 

preceding calendar year, in excess of EUR 300 million.  

1.4. 

The  tax  base  of  the  consumer  credit  lenders  and  credit  lenders  will  be  the  average  annual 

amount of disbursed consumer credit or credit related to real estate, which remains to be repaid, 

calculated  as  the  simple  average  of  the  annual  amount  of  disbursed  consumer  credit  or  credit 

related to real estate, as the case may be, which remains to be repaid at the end of four quarters 

of the preceding calendar year, in excess of EUR 300 million.  

1.5. 

The draft law provides a series of exemptions from the tax, as follows: (1) for a one-year period 

following  the  application  to  banks  (including  banks  licenced  in  EU/EEA  Member  States,  which 

have  established  branches  in  Lithuania)  or  central  credit  unions  of  measures  provided  for  in  a 

recovery  plan,  or  adoption  of  a  decision  to  reorganise  such  banks  or  central  credit  unions, 

(2) during  the  period  of  a  moratorium  declared  with  respect  to  a  bank  (including  a  branch  of  a 

bank  licenced  in  a  country  other  than  an  EU/EEA  Member  State),  central  credit  union,  credit 

union,  or  a  bank  licenced  in  an  EU/EEA  Member  State,  which  has  established  a  branch  in 

Lithuania,  and  (3)  if  a  taxpayer  is  subject  to  bankruptcy  or  restructuring,  or  bankruptcy 

proceedings are initiated against a foreign bank, which has established a branch in Lithuania.  

1.6. 

As  noted  in  the  explanatory  memorandum  to  the  draft  law,  the  purpose  of  this  draft  law  is  to 

enable the financial market participants referred to in the draft law to increase their contribution to 

the State budget revenue, needed to finance public services and meet public obligations. 

Draft law on credit institutions’ income tax 

1.7. 

The  draft  law  on  credit  institutions’  income  tax  would  impose  an  obligation  on  certain  credit 

institutions, namely, commercial banks, branches of foreign commercial banks, credit unions and 

central credit unions (collectively referred to as ‘credit institutions’), to pay an additional profit tax 

at the rate of 5 % of the taxable profits of the credit institution. 

1.8. 

The base for the additional profit tax shall be the taxable profit of the credit institutions, calculated 

by  deducting  from  the  taxable  income  of  the  credit  institution  the  allowable  deductions,  non-

taxable income, deferred tax assets and other amounts prescribed by the draft law, in excess of 2 

million euros. 

1.9. 

Credit  institutions’  annual  profits  of  up  to  2  million  euros  shall  not  be  subject  to  additional  profit 

tax. 

1.10.  The additional profit tax shall apply as of 1 January 2020 and be in effect for a three year period. 

1.11.  As  explained  in  the  draft  law,  the  main  purpose  of  the  draft  law  is  to  ensure  that  the  financial 

sector  contributes  to  a  greater  extent  to  the  fulfilment  of  social  and  other  public  obligations, 

whereas currently credit institutions are subject to a favourable tax treatment compared to other 

corporates in Lithuania. 

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2. 

General observations  

2.1. 

The  ECB  has  consistently  advised  that  taxes  on  financial  institutions  should  be  considered  in 

relation  to  the  dual  objective  of:  (a)  ensuring  a  more  equitable  distribution  of  the  costs  arising 

from  the  financial  institutions’  potential  failure  between  taxpayers  and  the  financial  sector;  and 
(b) addressing the risks that the failure of financial institutions would pose 2. Using the proceeds of 

any ad hoc taxes imposed on banks for general budgetary purposes would be undesirable to the 

extent  that  such  taxes  would  place  undue  burdens  on  banks,  hampering  the  provision  of  credit 
with  a  knock-on  effect  on  growth  in  the  real  economy3.  The  proceeds  from  taxes  on  financial 
institutions should be ring-fenced to avoid using them for general fiscal consolidation purposes 4. 

2.2. 

In  addition,  imposing  any  ad  hoc  taxes  on  banks  for  general  budgetary  purposes  should  be 

preceded  by  a  thorough  analysis  of  potential  negative  consequences  for  the  banking  sector  to 

ensure  that  such  taxes  do  not  pose  risks  to  financial  stability  and  the  provision  of  credit,  which 

could eventually  adversely affect growth  in the real  economy. This might in turn result in banks 

offering  less  favourable  terms  to  their  customers  when  providing  loans  and  other  services  and 

may  also  induce  certain  banks  to  cut  back  on  their  activities,  leading  to  a  reduction  in  the 
availability of credit and creating uncertainty for these banks5. 

2.3. 

The  introduction  of  the  tax  should  be  carefully  considered  with  regard  to  its  impact  on  the 

profitability  of  affected  financial  institutions,  and  thereby  on  their  internal  capital  generation 

capacity  which  in  turn  affects  both  their  resilience  to  adverse  shocks  and  the  ability  to  extend 

credit and support the real economy. In this context, the differences in the situation of individual 

banks must be taken into account, as must the potential impact of other relevant regulations that 

are  being  introduced  in  Lithuania  and  in  the  Union.  In  particular,  the  situation  of  weaker  banks 

and banks that may be disproportionally affected and record losses as a result of the proposed 

tax should be fully analysed. 
In the light of the foregoing, and in line with its previous opinions 6, the ECB has concerns that the 

2.4. 

draft law on financial market participants’  asset tax could have a material adverse effect on the 

Lithuanian  financial  system  and  trigger  potential  undesired  distortions  with  respect  to  bank 

business  models.  The  ECB  urges  the  Lithuanian  authorities  to  assess  the  impact  that  the 

introduction of this tax would have on the stability of the Lithuanian financial system.     

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6   

See  paragraph  2.1  of  Opinion  CON/2019/40,  paragraph  2.1  of  Opinion  CON/2016/01,  paragraph  3.1.1  of 
Opinion CON/2015/43,  paragraph  2.1  of  Opinion  CON/2013/44,  paragraph  2.1  of  Opinion  CON/2011/29  and 
the  ECB’s  website  at 
paragraph  3.2.1  of  Opinion  CON/2010/62.  All  ECB  opinions  are  published  on 
www.ecb.europa.eu. 
See paragraph 2.1 of Opinion CON/2019/40, paragraph 3.1.1 of Opinion CON/2015/43. 

See paragraph 2.1 of Opinion CON/2019/40, paragraph 3.2.1 of Opinion CON/2010/62. 
See  paragraph  2.1  of  Opinion  CON/2016/01,  paragraph  3.1.1  of  Opinion  CON/2015/43,  paragraph  2.1  of 
Opinion CON/2011/29 and paragraph 3.2.2 of Opinion CON/2010/62. 
See  paragraph  3.2  of  Opinion  CON/2019/29,  paragraph  2.4  of  Opinion  CON/2019/40,  paragraph  2.4  of 
Opinion CON/2016/01,  paragraph  2.2  of  Opinion  CON/2013/44,  paragraph  2.2  of  Opinion  CON/2011/29  and 
paragraph 3.2.2 of Opinion CON/2010/62. 

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2.5. 

Regarding the draft law on credit institutions’ income tax, it is recommended that the draft law is 

accompanied by a comprehensive impact assessment regarding the introduction of this tax. 

ECB-PUBLIC 

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

Done at Frankfurt am Main, 16 December 2019. 

[signed] 

The President of the ECB 

Christine LAGARDE 

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