A proposed EU tax meant to raise billions from banks could badly hit the UK's insurance and property sectors, their trade bodies warned this weekend.
Two industry lobby groups, the Association of British Insurers (ABI) and the British Property Federation (BPF), led by Liz Peace, have approached the Commission with concerns that their members could be liable to pay its proposed Financial Activities Tax – the so-called FAT tax.
The EU Commissioner for taxation and customs, Algirdas Semeta, published the FAT proposal last month and said that it would be applied to banks' profits and bonuses, and would not exceed 5 per cent. He also said the tax could raise up to ¤25bn (£21bn), and that it was a necessary measure to tackle an "under-taxed" financial sector. Such a tax could generate £2.5bn a year from banks in the UK alone.
However, while the tax is clearly targeted at banks, a look at the finer detail of the Commission Staff Working Paper has uncovered a footnote reference that says that it should be applied as widely as possible.
The paper states: "Any version of the FAT tax could lead to differences in treatment between financial institutions subject to such a tax and quasi-financial institutions outside its scope. The implementation of a FAT should therefore cover as large as possible a range of financial institutions. The whole financial sector includes banks, insurance companies, investment funds, credit-card companies, consumer finance companies and stock brokerages and some government-sponsored enterprises."
Peter Vipond, the ABI's director of financial regulation and taxation, said: "We have made it clear that there should not be a read-across of any measures aimed at the banking sector to other financial service sectors."
The BPF sent a preliminary paper to the EU Commission on Monday setting out its concerns about the scope of the FAT proposal and seeking further clarification.
For the property industry, the danger lies in how the Commission defines an "investment fund", and whether firms providing financial services, such as property fund management, are included in its definition of "financial sector". Such decisions could inadvertently drag in property funds and cost the industry dearly.
A FAT would be a further blow to a sector already facing huge regulatory costs that affect investor returns. The industry feels it has been unfairly caught up by another EU directive – the Alternative Investment Fund Managers (AIFM) Directive – passed by the European Parliament on Wednesday.
This directive sets out to regulate risk-taking by hedge funds and promote greater transparency, but an unclear interpretation has implicated property fund managers, and without further clarification could haul in FTSE giants such as British Land and Land Securities.Reuse content