Taxing The Financial Sector

One of the most complex issues in tax policy today is the treatment of the institutions, products, and services that make up the financial sector. It can be harder to ascertain income, expenses, and profits for financial firms than for firms selling goods and services, and it is easier for individuals and firms to manipulate financial transactions so as to exploit tax loopholes. This volume explores the challenges faced by tax policymakers and identifies modern best practices in several areas: banks, insurance companies, securities companies, investment funds, pension funds, and derivatives.

This book contains contributions from prominent practitioners and academics presenting their views on the tax levies on the financial sector from a legal and an economic perspective. (New) tax levies on the financial sector have been an ongoing subject of interest since the financial crisis of the past years. In this book, various ways of taxing the financial sector are discussed.

Analytical and empirical perspectives on the interplay of taxation and regulation in the financial sector.

This book examines how tax policies contributed to the financial crisis; whether taxation can play a role in the reform efforts to establish a sounder and safer financial system; and the pros and cons of various tax initiatives.

Taxing Banks Fairly offers an ethical perspective on bank taxation and financial stability to complement the traditional political economy approach. It also considers how a bank levy or financial activities tax, could be used to ensure that big banks m

The financial crisis has prompted a reconsideration of the taxation of financial institutions, with practice outstripping principle: France, Germany, the United Kingdom and several other European countries have now introduced some form of bank tax, and the U.S. administration has revived its own proposal for such a charge. This paper considers the structure, appropriate rate, and revenue yield of corrective taxation of financial institutions addressed to two externalities, consequent on excessive risk-taking, prominent in the crisis: those that arise when such institutions are simply allowed to collapse, and those that arise when, to avoid the harm this would cause, their creditors are bailed out. It also asks whether corrective taxation or a regulatory capital requirement is the better way to address these concerns. The results suggest a potential role for taxing bank borrowing, perhaps as an adjunct to minimum capital requirements, at marginal rates that rise quite sharply at low capital ratios (but are likely lower when the government cannot commit to its bailout policy), reaching levels higher than those of the bank taxes so far adopted or proposed.

In reaction to the recent financial crisis, increased attention has recently been given to financial transaction taxes (FTTs) as a means of (1) raising revenue for a variety of possible purposes and/or (2) helping to curb financial market excesses. This paper reviews existing theory and evidence on the efficacy of an FTT in fulfilling those tasks, on its potential impact, and on key issues to be faced in designing taxes of this kind.

This book examines the options for, and obstacles to, successful financial sector tax reform, both in terms of theoretical and practical aspects. Issues discussed include: the design of optimal tax schemes, the role of imperfect information and the links between taxation and saving, inflation, the income tax treatment of intermediary loan-loss reserves, deposit insurance, VAT and financial transactions taxes; as well as current practice in the industrial world and case studies of distorted national systems. This is a co-publication of the World Bank and Oxford University Press.