Banks Taxation: Characteristics and Recent Developments

The nature of banking justifies the application of a specific taxation for banks. First, considering that financial leverage cannot be disassociated from bank intermediation, it is hardly pertinent to adjust for the “fiscal bias of debt” or to place a ceiling on interest charges as is the case with non-financial companies. Second, measuring value added is no easy task, which explains why most of the developed countries have exempted financial services from VAT, and have adopted alternative mechanisms such as the payroll tax in France. Earnings, in contrast, are taxed in the same manner in both the financial and non-financial sectors, with the exception of surcharges levied in certain countries. Our calculations at the euro area level, based on national accounts, show that the fiscal contribution of financial institutions, as a share of value added, is higher than for non-financial companies, and that this gap has tended to widen since the financial crisis, notably under the influence of new banking levies introduced in several countries. Lastly, there are some complementary features, as well as the risk of redundancy, between bank taxation, contributions to the Single Resolution Fund and prudential regulation.