The Government hastily prepares the new taxes on banking and energy companies to obtain some 7,000 million euros in two years. These levies have to be approved before the end of the year so that there are no legal problems due to retroactivity and they will only be directed at a small number of companies: those that invoice more than 1,000 million. That of the energy companies follows the model implemented in Italy by Mario Draghi and will be applied from the VAT billing to electricity, gas and oil companies in order to enter 2,000 million a year. On the bank there are more doubts. But according to knowledgeable sources, it is being studied that the total interest and commissions charged by entities be taxed at a rate that could be around 5%. Although other government sources ask for caution and stress that there are still other options on the table and that, in addition, it remains to close it with Podemos.
In any case, in this way they intend to obtain the 1,500 million advanced by the Prime Minister, Pedro Sánchez, in the debate on the State of the Nation. The president said that this new tax, temporary and extraordinary, would tax the profits obtained by entities from the next rate hikes. UBS calculates that for every 0.25 points that the Euribor rises, Spanish banks can earn up to 10% more. Although this increase in benefits will be progressive and will not be fully deployed until 2024, the figure could exceed 1,000 million per quarter of a point.
These sources explain that basically it is about following a scheme similar to that of VAT, a tax from which financial services are exempt. On the other hand, insurance is taxed at 8% on premiums. So an attempt would be made to find something equivalent by taxing large entities for all interest and commissions. The possibility of raising company rates is ruled out because banks have many accumulated losses on their balance sheets, which are estimated at around 100,000 million and can be deducted from their tax bill at a rate of 30%. These 30,000 million are called deferred tax assets (DTAs) and banks can compute them as regulatory capital thanks to the State guarantee. In exchange for this, the entities pay 1.5% per year so that they are not declared public aid by the EU. In fact, the rate was left at 30% —the general is 25%— to prevent them from having to increase capital. In short, raising rates does not help much. And touching those negative bases could generate a capital problem and create legal uncertainty.
So the inspiration for the new tax that the Executive is finalizing is found in the Financial Activity Tax (FAT), a tax proposed by the IMF at the G20 in June 2010, seeking that entities return part of the costs of the financial crisis. The European Commission also advocated for it at that time with a rate of 5% and that, in its most demanding format, it could collect up to 25,000 million throughout the EU. Since the Spanish economy represents 10%, up to 2,500 million would come from there.
The PSOE took up this idea in 2018 and defended it to get some 1,000 million. So it was intended that they finance the pension deficit. At that time Podemos tried to approve a solidarity surcharge for entities in corporate tax by raising the rate ten points. Thus they would compensate part of the 69,000 million of the bank rescue. However, with the arrival to the Executive of Pedro Sánchez, this initiative ended up being discarded. And now it has been taken out of the drawer to finance measures against inflation. This tax was put on the table in 2010 together with the tax on financial transactions, the so-called Tobin Tax that was approved in 2019 and that raises some 300 million a year compared to the 850 million that was expected.
However, in the European debate this figure of the FAT has become outdated and, although some countries have taken an initiative inspired by it, the vast majority have not started it. It can be applied in many ways: for example on the sum of benefits and salaries, on excess remuneration or excess benefit. The Government values taking interest and commissions because it is considered easier to apply and has less impact on employment. In Spain, the now Minister of Social Security, José Luis Escrivá, when he presided over the Tax Authority, defended it vigorously. And now he is one of its biggest promoters in the Executive. Podemos has always defended greater taxation of banks. And the Minister of Finance, María Jesús Montero, did not see a tax with bad eyes, but the technicians of the ministry considered its application complicated.
Indeed, its design has significant technical problems to overcome. The small print will be essential so that the bank does not challenge it in court. For example, it can be difficult to determine where those commissions or interests are being paid: do only those from Spain enter or those from all over the world and then it can give rise to double taxation problems? Can it be a competitive advantage for small entities that do not support it? It also has the inconvenience compared to VAT in that it can represent an added cost for business activity as companies cannot deduct it. The experts’ white paper, on which the tax reform committed to Brussels should be based and whose members were elected by the current Ministry of Finance, only speaks of lifting the VAT exemption for banking along the same lines as the European Commission in his last papers. Nothing from the FAT. When the VAT was created, it was thought that financial activities were basic and that it was very complex to tax them. With current technology it could be done but it is still complicated. Banks want VAT because they can deduct what they support for their purchases and which is estimated at around 2,000 million.
Another obstacle is that the increase could be transferred to the client, which in turn could cause a problem of financial exclusion in low incomes. In general, the white paper warns that care must be taken when dealing with corporate taxation. These are the taxes that are passed on the most and that can have an impact on investment, prices, employment or wages, he concludes. The Minister of Finance has declared that entities will be prohibited from transferring it, but this seems somewhat difficult insofar as it is not established that an entity cannot transfer an increase in costs.
The white paper of the experts
Specifically, the white paper says: “The public debate on the distributive impact of the Corporation Tax assumes that this falls exclusively on the owners of the companies or on capital income”, states the experts’ document. “This view omits the available analyzes on the translation of taxes. […] First, it increases the user cost of capital, thereby reducing the volume of potential business investment due to the higher gross return required to carry out an activity. In an open economy, the reduction in the net return on capital would produce a reduction in the volume of capital added and, through a general equilibrium effect, an impact on wages due to lower productivity. Secondly, the tax may fall not only and exclusively on the owners, but part of their tax burden may be transferred to consumers through higher final prices, to workers in terms of lower wages or to suppliers with lower prices. lower purchase price of inputs. Although there are no studies for the Spanish economy, the book cites research from Germany and the United States. And he says that the degree of translation depends on competitiveness, margins, the opening of the economy or the labor market.
On the contrary, the Government considers that it is a sector that has received a lot of public aid and where wages are very generous. It is a way of making them lend a hand, as President Sánchez said in Congress. Sources from the financial sector complain about legal insecurity. And they emphasize that the bank has lost more in the Stock Market than it is going to levy the tax. It is a sign of mistrust, they explain.
Pending closing with Podemos
The Government maintains that at the moment the discussion is still in the technical debate phase. Experts consulted point out that there is also room for a tax on extraordinary profits, but that figure is more difficult to justify, especially when speaking of a sector that is going through a restructuring due to the business model, the financial crisis, the pandemic, a decade of interest rates ultra low and competition fintech. Recently, entities have been called upon to maintain open physical structures in order to serve the elderly, financial sources recall. Although this position contrasts with the speed with which the banks have recovered their dividends after the pandemic and how they have benefited from the ICO credits, guaranteed by the State and which guaranteed the solvency of the entities.
In any case, the conclusions of the technicians on the tax will then be transferred to the negotiation with the Podemos partners. And there could still be some change. For now, according to several sources, there is no intention to negotiate with the bank. You will talk to her only when you are already profiled.
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