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Special Taxes in the Financial Sector Special taxes in the financial sector Nordic comparison November, 2017 kpmg.com Special taxes in the financial sector The question of additional taxes on financial institutions became prominent following the financial crisis of 2007-2008. The topic has generated much public and political discussions in recent years with many proposals presented, some of which have been implemented in countries legislations. From the beginning special taxes on the financial sector has had many advocates, including political and economic leaders, civil society organization and financiers. On the other hand, proposals on special increased taxes on the financial sector have been highly criticized by the financial sector with many countries not willing to take such steps as it has been argued that such taxes damage the competitiveness of financial institutions subject to such taxes, increase the prices of financial products and interest on loans and decreases demand for labour in the financial sector. The Nordic countries are no exceptions to these ideas and have in many ways gone far when it comes to burdensome taxation on the financial sector. The following pages focus on special taxes in the financial sector in the Nordics. The overview has been divided into three parts, i. Financial Stability Contribution (FSC/Bank Tax), ii. Financial Activity Tax (FAT) and iii. Financial Transaction Tax (FTT). © 2017 KPMG ehf., an Icelandic private limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 2 How increased bank levies have become a reality Denmark (FAT) Obama´s Financial Crisis Responsibility Fee EU considered taxes Denmark has had a Financial Proposed tax which would be imposed on EU executive said it will study whether Activity Tax since 1990 and a financial institution until that financial institution the EU should go alone in imposing a Pension Activity Tax from had paid off all money provided to it under the tax on financial transaction after G20 2000. “Troubled Assets Relief Program”. This fee failed to agree. remained just a proposal. EU leaders urge IMF to Iceland (FSC) G20 declared that a “global tax” The financial crisis Special tax on Financial consider global tax on was no longer “on the table”. Institution introduced in Iceland. of 2007-2008. financial transactions (Tobin Tax) 2007 2008 2009 2010 2011 IMF Final report to the G20 laid EU Commission G20 request to IMF to prepare a report “with out options, mainly: regards to the range of options as to how the provided an assessment 1. Financial Stability Contribution of the suitability of FTT financial sector could make a fair and (FSC). substantial contribution toward paying for any and FAT. 2. Financial Activity Tax (FAT). burdens associated with government 3. Financial Transaction Tax interventions to repair the banking system.” EU Commission issued (FTT). consultation to obtain feedback on its initiatives for The Financial Sector, Central Banks and public the taxation on the Financial authorities opposed any kind of tax on the sector Sector. NGO´s, trade unions and citizens in general were in favour of the FTT proposal. EU Commission promoted an FTT as a “own resource” of the EU in addition to customs duties (and VAT). EU Commission proposal for FTT “To make the EU FTT financial sector pay its fair share” in 27 member states postponed to 1 of the EU by January 2014 – repeated postponement has lead to that the FTT has not been implemented. January 2016 2012 2013 2014 Norway – FAT introduced starting from 2017: Iceland (FAT) i. Employers subject to extra 5% payroll tax i. Employers subject to extra payroll tax. ii. Taxation of the enterprises maintained at 2016 level – 25% rate retained unaltered. ii. Additional tax on profits. Sweden – Government proposal to a controversial tax on the financial industry. 2015 2016 2017 EU FTT postponed to 2017 – Formal agreement on the details of the EU FTT still not decided upon and approved by the EU Parliament. © 2017 KPMG ehf., an Icelandic private limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 3 Modern methods for taxing the financial sector with special tax regimes were put forward by the BANK International Monetary Fund (IMF) in its report Taxes / “A fair and substantial contribution by the Levies Financial Sector“ for the G-20 in June 2010. When viewing the special taxes/levies the Nordic countries impose on their Financial Sector we divided them into three categories. FSC Financial Stability Contribution / „Bank Tax“ Tax on financial institutions balance sheet, i.e. FAT liabilities and/or assets Financial Activity Tax Tax on profits FTT Tax on Financial Transaction Tax remunerations Tax on a broad range of trade in financial instruments © 2017 KPMG ehf., an Icelandic private limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 4 Nordic countries comparison FAT – Financial Activity Tax on profits In broad terms, FAT is tax on financial institution profits and/or remuneration packages of their employees with the proceeds going into general government revenues. Tax on profits FAT on profits has been in place in Iceland since 2012 and was introduced in Norway in 2017. 26% Total 25% Total 6% FAT 1%1%FAT FAT 24% 22%22% 20% 20% 24% 22% Denmark Finland Iceland Norway Sweden General corporate tax rate FAT on profits © 2017 KPMG ehf., an Icelandic private limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 5 Nordic countries comparison FAT – Financial Activity Tax on remunerations FAT is also raised on the financial institutions remuneration packages. Tax on remunerations 14,10% 5,50% 5% Denmark Iceland Norway Denmark Iceland Norway Banks and other financial Commercial banks, savings Companies carrying out institutions (and certain banks, credit institutions, ‘financial activities’ such as other VAT exempt sectors). security companies, security banking insurance, mutual brokerages, mutual funds funds, investment management companies companies, holding Applies to and other financial companies, pension funds, institutions. financing activities, services related to financing and insurance activities, and fund / portfolio management. Calculated on the total Any kind of salaries or Same basis as for annual salary cost (pension, remuneration paid in respect employer's social security bonuses, labor market of an employment and is contributions. Broadly, all Tax Base contributions, benefits etc.) taxable. salary, both in cash and in in relation to VAT exempt kind. activities. © 2017 KPMG ehf., an Icelandic private limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 6 Nordic countries comparison FSC – Financial stability Contribution / “Bank Tax“ IMF describes bank levies as “Financial Stability Contribution” which is a levy to be paid for the fiscal cost of any future Tax on government support to the financial sector. balance The aim is ensure financial stability and sheet, reducing the risk of future crisis. i.e. liabilities and/or assets) FSC Tax 0,400% 0,300% 0,200% 0,376% FSC Rates 0,100% 0,000% Iceland Iceland is the only Nordic county imposing “Bank Tax” or “FSC” on its financial sector. Iceland imposes the tax on the base of total liabilities exceeding ISK 50 billions, with no possibilities to net off guaranteed deposits. © 2017 KPMG ehf., an Icelandic private limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 7 Nordic countries comparison FTT – Financial Transaction Tax EU Commission said that the FTT can be better described as “a group of taxes [...] the taxing of trading in financial instruments such as shares and bonds and of trading in Tax on financial derivatives thereof.” instruments, such as stocks, bonds, currencies and derivatives. FTT has not been imposed in any Nordic country. Furthermore both Sweden and Denmark have opposed the EU Commission´s proposal to implement FTT if applied only in the EU. EU members participating in the proposal Questions on if, when and then how of the EU Commission to implement a FTT countries will implement the FTT remains using enhanced co-operation. unanswered. © 2017 KPMG ehf., an Icelandic private limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. 8 Threshold/ Applies to Rate Tax Base Exclusion from tax base Financial 6% Income tax base with no joint ISK 1 billion in income, institutions which taxation or carry forward of i.e. income blow that is have a license to losses taken into account. excluded from the tax Iceland operate as such – base. financial services exempt from VAT. Companies 1% Ordinary taxable income (same Only applicable if the FAT carrying out (increa as CIT). on remunerations is financial activities. sing to applicable (see below). FAT on profits FAT Norway 2% from 2018) Banks and other 14,1% Calculated on the total annual Salary costs in relation to financial salary cost (pension, bonuses, VAT taxable activities and institutions (and labor market contributions, its annual VAT exempt Denmark certain other VAT benefits etc.) in relation to VAT indirect tax basis exceeds exempt sectors). exempt activities. DKK 80,000. Financial 5,5% Any kind of salaries or Retirement and pension institutions which remuneration paid in respect of payments, remuneration have a license to an employment and is taxable. for activities that are not operate as such - VAT exempted and Iceland financial services payments b/c of paternity.
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