Survey Shows That End Customers May Bear the Burden of Any New Tax on the EU Financial Sector

18 July 2011 - London , United Kingdom - CFA Institute today released the results of a poll (PDF) of investment professionals on the proposed taxation model for the financial sector in the European Union (EU). The poll of 722 CFA Institute members in the EU and Switzerland obtained feedback on the three taxation models being consulted on by the European Commission. The results indicated mixed opinion on the models but there was consensus that costs will mainly be borne by the end customer1 of financial services products, and only a minority believes that a new tax would be effective at EU level alone.

The three types of taxation being consulted on by the European Commission are a Financial Transaction Tax (FTT); a Financial Activities Tax (FAT), levied on the sum of profits and wages; and a bank levy (asset-based or liability). The survey showed that 49 percent of respondents believe that a new tax on the financial sector would not be justifiable, compared to a slightly lower 48 percent of respondents who believe it would be. Almost a third (31 percent) of respondents think that if a new tax is imposed on the financial sector, it should be a bank levy only. Over half of respondents think investment/pension funds, insurance, and traditional banking are currently appropriately taxed (55 percent, 54 percent, and 61 percent respectively), whereas only 32 percent and 29 percent, respectively, think alternative investment funds and investment banking are appropriately taxed.

For the three types of taxation, a majority of respondents indicated that the cost of these proposed taxes will be mainly borne by the end customer: 75 percent for FTT, 60 percent for FAT, and 59 percent for a bank levy.

For each of these models of taxation, members were asked to determine the level at which they would be most effective. Respondents answered similarly regarding the FAT and the bank levy: 54 percent and 59 percent think they would be most effective at G20 level or higher, 29 percent and 23 percent think they would not be effective at any level, and 9 percent and 11 percent think they would be most effective at EU level. Opinions were split on the FTT: 45 percent of respondents believe it would not be effective at any level and 44 percent believe it would be effective at G20 level or higher. Only five percent think it would be most effective at EU level.

Commenting on the poll, Agnes Le Thiec, CFA, director, Capital Markets Policy, CFA Institute, said:

“The European Union faces some tough decisions on regulatory reform and holding the financial sector to account for the crisis. Even by trying to recoup the cost of the crisis through taxation it is not clear which model would work in the best interests of everyone. Judging from the poll results, the views of investment professionals remain mixed on the model of taxation being proposed but concerns exist over the burden on the end customer, regulatory arbitrage, and EU competitiveness.”


1Investors, savers, borrowers, traders or any users of financial products

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