The taxation of the financial sector has been a topic of intense debate in the EU over the past decades. This page outlines the developments on this topic to date.
Background on Taxation of the financial sector
- 2007
In 2007, the European Commission proposed an amendment to the VAT Directive to modernise and simplify the rules for financial and insurance services and ensure they are consistently applied across the EU. This proposal was withdrawn in 2016.
- 2011
In 2011, in the aftermath of the 2008 financial and economic crisis, the Commission presented a proposal for a Council Directive on a common system of financial transaction tax. Due to the absence of unanimity on adopting this proposal, 11 EU countries (AT, BE, DE, EE, ES, EL, FR, IT, PT, SI and SK) decided to initiate proceedings for the establishment of enhanced cooperation in the area of financial sector taxation.
- 2013
In 2013, the Commission tabled a proposal for a Council Directive to implement enhanced cooperation in the area of financial transaction tax. The Council working group on this topic started discussions immediately, but no agreement was reached. In March 2016, Estonia formally withdrew from this cooperation agreement. In the 2026 Commission work programme, the Commission indicated its intention to withdraw the proposal due to the lack of progress in the legislative process.
- 2020
In 2020, the Commission started preparatory work to assess different options for a possible review of VAT rules for the financial sector, following the release of the 2020 Tax Action Plan. In February 2021, an open public consultation was launched to gather the views from relevant stakeholders.
- 2024
In 2024, the Commission launched a comprehensive study on the current tax framework applicable to the financial sector. The framework includes various sector-specific taxes on insurance premiums, financial transactions, bank levies and the recently introduced windfall tax, as well as the VAT exemption for financial services that has been in place for more than 40 years. The main purpose of this study is to provide an informed analysis of potential problems arising from the current tax framework applicable to the financial sector in the EU.
The original proposal of 28 September 2011
In September 2011, the European Commission proposed a harmonised Financial Transaction Tax for the entire European Union (see (IP/11/1085).
- frequently asked questions (MEMO/11/640)
- the proposal itself (COM/2011/594)
- the impact assessment (SEC/2011/1102), its summary (SEC/2011/1103) and the citizens' summary (Annex1)
- a presentation explaining the main characteristics of the proposal.
The objectives of the proposed FTT were:
- to prevent the fragmentation of the Single Market that could result from numerous uncoordinated national approaches to taxing financial transactions,
- to ensure that the financial sector made a fair and substantial contribution to public finances, and
- to discourage financial transactions which do not contribute to the efficiency of financial markets or of the real economy.
This initiative was also supposed to be a first tangible step for taxing such transactions at the global level.
The proposal was to harmonise the tax base and set minimum rates for all transactions on (secondary) financial markets, once at least one EU party (financial institution) was involved in this transaction. The minimum tax rates foreseen were 0.1% for the trading in shares and bonds, and 0.01% for derivative agreements such as options, futures, contracts for difference or interest rate swaps.
The proposal took a "triple A" approach, i.e. the tax should apply to all markets (such as regulated markets or over-the-counter transactions), all instruments (shares, bonds, derivatives etc.) and all actors (banks, shadow banks, asset managers, etc.). This would minimize potential distortions across different market segments and reduce the risk of tax-planning, substitution and relocation.
and its fate
By mid-2012, EU Finance Ministers decided at ECOFIN that they could not reach unanimous agreement on the proposal for an EU-wide FTT in the foreseeable future. Nonetheless, a number of Member States expressed a strong willingness to go ahead with the FTT. The door was therefore open for a subgroup of Member States to engage in the procedure of "enhanced cooperation" on a common Financial Transaction Tax harmonised amongst themselves. By end-September 2012, the Commission had received a request to this end from a group of 11 Member States.
They asked to be allowed to introduce a common system of FTT based on the scope and objectives of the Commission's initial proposal. The Commission analysed this request to ensure its compatibility with EU law, also taking into account the interests of non-participating Member States. On 23 October 2012 the Commission proposed to the Council to authorise the enhanced cooperation requested by these eleven Member States (see IP/12/1138). The European Parliament gave its consent on 12 December 2012 and the EU Council adopted a decision authorising eleven Member States to go ahead with the requested enhanced cooperation on 22 January 2013 (see Council press release).
Preparatory work in 2010
On 7 October 2010 the Commission published a communication (COM/2010/549) setting out ideas for the future taxation of the financial sector. This was followed on 22 February 2011 by the launch of a public consultation on the taxation of the financial sector, aimed to receive as wide as possible feedback on the ideas set out in the Communication. The results of the consultation are available on the website.
In parallel, the Commission has explored ways to introduce a financial transaction tax at global level since 2009 with its international partners in the G20 (Pittsburgh, Toronto) and will continue to do so. Is the FTT as proposed in compliance with international taxation and European law? In the meantime, the UK has challenged the legality of the decision of 22 January 2013 of the Council to authorise enhanced cooperation on a common framework of FTT and the scope and objectives of the initial commission proposal (see Case C-209/13 UK v Council ) claiming that the Council decision authorised legislation has illegal extra-territorial effects, and is not respecting the rights of non-participating Member States. This legal challenge has, however, no suspending effect.
The Commission and several participating Member States rebutted the claims that the harmonised FTT framework as proposed by the Commission would contain provisions with illegal extraterritorial effects or not respect the rights of non-participating Member States.
Speech (reply/intervention) by the EU Commission's Director for indirect taxation, M. Bergmann at a conference in Paris (23 January 2014)
The legality of the "counter-party principle" and the FTT proposal as such – a technical note
Next steps
Information on the next steps on possible legislative or non-legislative initiatives will be listed on this webpage as they become available.
Relevant documents
- Proposal COM (2007) 746 for a Council Regulation laying down implementing measures for Directive 2006/112/EC on the common system of value added tax, as regards the treatment of insurance and financial services
- Proposal COM (2007) 747 for a Council Directive amending directive 2006/112/EC on the common system of value added tax, as regards, the treatment of insurance and financial services
- Modernising VAT rules applied on financial and insurance services – Frequently Asked Questions – MEMO/07/519 Commission staff working document accompanying proposal
- Impact assessment SEC(2007)1554 (summary)
- Harmonisation of turnover taxes: Background paper TAXUD/2414/08 requested by the Council Presidency
- Survey on the recovery of input VAT in the financial sector
- Study TAXUD/2005/AO-006 to increase the understanding of the Economic Effects of the VAT Exemption for Financial and Insurance Services, Final Report to the European Commission
- A study of Methods of Taxing Financial and Insurance Services, carried out for the European Commission by Ernst & Young, 1996 (The ‘blue book’)
- VAT: Call for input on the forthcoming review of Community Legislation on the VAT treatment of financial services
- Communication COM(2010) 549 on Taxation of the Financial Sector, European Commission
- Financial Sector Taxation – European Commission Staff Working Document SEC (2010) 1166 accompanying the Communication on Taxation of the Financial Sector