AFME doubts on the viability of bank taxes
25 May 2010
Responding to the IMF paper on bank taxes, AFME stated that global special taxation regimes are untested, and sufficiently unwieldy and imprecise in practice. At a minimum, AFME feels that any global special taxation regime to be successful, must integrate with the global regulatory landscape.
Members of the Association for Financial Markets in Europe (AFME) and the Securities Industry and Financial Markets Association (SIFMA) subscribe fully to the principle that the financial sector should not rely on public funds in the event of a crisis. Banks must be allowed to fail and the cost of dealing with any failure must be first met by shareholders and creditors. Setting aside tax revenue as insurance against future bank failures relieves industry of a responsibility that it properly bears and, paradoxically, may create a climate of moral hazard that our members seek to eliminate.
Instead, we feel that the industry has much to contribute to sensible reforms of the financial sector that will reduce the need for government intervention – regardless of how the funds are raised – through:
· robust capital and liquidity regimes that reduce the risk of failure; and
· appropriate resolution regimes that reduce the impact of failure.
AFME believes that global special taxation regimes are untested in fact, and sufficiently unwieldy and imprecise in practice to give rise to very real doubts about their viability. Nevertheless, we accept that the G-20 has asked the IMF to analyse the question on the assumption that additional tax from the sector is considered to be essential. In that spirit, we offer our observations on the proposals contained in the IMF Report. At a minimum, we feel that any global special taxation regime, if it is to be successful, must:
· Correlate with maximum precision to a legitimate regulatory objective;
· Integrate coherently with the global regulatory landscape;
· Benefit from an empirical impact assessment that demonstrates a minimal and proportionate impact on global economic growth;
· Build on existing, recognised, and tested OECD principles and methods;
· Be imposed and removed via existing national and international tax frameworks;
· Make use of existing treaty networks, and dispute resolution mechanisms; and
· Strike the proper balance between global coordination and respect for national sovereignty.
© AFME
