By Emma Charlton

BRUSSELS (MNI) – The German government’s plan for a levy on banking
groups has raised concern among European Union policymakers that
national taxes on financial institutions could conflict with one another
– a problem some hope can be ironed out in early September.

Some fear that Germany’s plan could overlap with those of other EU
states and pose the risk of some banks being taxed multiple times
because of operations across EU borders.

“These issues will have to be discussed and worked out at the
Ecofin [meeting of finance ministers] in September,” an EU diplomat
said. “Unresolved, they could pose a problem.”

One of the main sticking points is that German Chancellor Angela
Merkel wants to tax banks headquartered in her country, while UK
policymakers are proposing that Britain’s separate levy be applied to
all banks operating on British soil regardless of where they are
headquartered.

If both countries continue to implement their separate plans, a
bank headquartered in Germany with operations in the other EU states —
such as Germany’s Deutsche Bank AG, headquartered in Frankfurt with
major operations in London, Paris and Amsterdam — could be liable for
multiple taxes.

Diplomats hope the differences can be settled at a meeting of EU
finance ministers in Brussels on September 7.

While most countries agree that banks should have to pay a levy to
raise money for future crises, there are differences of opinion among
the EU’s 27 members about the finer details.

Some countries want to be able to offset the amounts raised in each
national fund against their national debts, while others, including
Germany, want the funds to be ring-fenced and used to bail out banks in
future crises. The European Commission backs the ring-fencing approach.

Germany’s Finance Ministry pointed out that its plans for a tax —
which it hopes will be in place by the end of the year — are in line
with an EU-wide agreement on levies.

The European Commission — in a campaign spearheaded by EU
Commissioner for Internal Markets, Michel Barnier — has long been
trying to broker a deal for a globally coordinated tax on banks.

But after failing to get agreement at a G20 forum in June this
year, the EU countries agreed to press ahead with their own national
bank taxation plans.

Barnier has long said he wants to create ring-fenced national
banking funds in each EU state, which could be tapped in banking crises.
He argues that there should be “coordinated management of national
funds.”

Exactly how much should be raised by these funds and in what manner
is down to the member state.

Under Germany’s plan, banks will pay a fee determined by their
assets.

An International Monetary Fund paper suggested that bank resolution
funds should amount to between 2% and 4% of a country’s gross domestic
product.

–Brussels: 0032 487 (0) 32 803 665, echarlton@marketnews.com

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