On a coherent tax framework for the EU's financial sector

MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION

on a coherent tax framework for the EU's financial sector

(2024/2117(INI))

The European Parliament,

– having regard to the Treaty on the Functioning of the European Union, and in particular Articles 113, 114 and 115 thereof,

– having regard to the Commission proposal of 28 September 2011 for a Council directive on a common system of financial transaction tax and amending Directive 2008/7/EC (COM(2011)0594),

– having regard to the Commission proposal of 14 February 2013 for a Council Directive implementing enhanced cooperation in the area of financial transaction tax (COM(2013)0071) (FTT proposal),

– having regard to the Commission proposal of 28 November 2007 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 (COM(2007)0746),

– having regard to the Commission proposal of 28 November 2007 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 (COM(2007)0747),

– having regard to the Commission’s inception impact assessment of 22 October 2020 on a review of the VAT rules for financial and insurance services,

– having regard to the study requested by Parliament’s Subcommittee on Tax Matters entitled ‘The taxation of the EU’s financial sector’, published by its Directorate-General for Economy, Transformation and Industry in June 20251,

– having regard to the Interinstitutional Agreement of 16 December 2020 between the European Parliament, the Council of the European Union and the European Commission on budgetary discipline, on cooperation in budgetary matters and on sound financial management, as well as on new own resources, including a roadmap towards the introduction of new own resources2,

– having regard to its resolution of 10 May 2023 on own resources: a new start for EU finances, a new start for Europe3,

– having regard to the report by Enrico Letta of April 2024 entitled ‘Much more than a market – Speed, Security, Solidarity: Empowering the single market to deliver a sustainable future and prosperity for all EU citizens’ (Letta report),

– having regard to the report by Mario Draghi of 9 September 2024 entitled ‘The future of European competitiveness’ (Draghi report),

– having regard to the Commission communication entitled ‘Savings and Investments Union: A Strategy to Foster Citizens’ Wealth and Economic Competitiveness in the EU’ (COM(2025)0124),

– having regard to Rule 55 of its Rules of Procedure,

– having regard to the report of the Committee on Economic and Monetary Affairs (A10-0000/2025),

A. whereas, in her 2024 mission letter to the Commissioner responsible for taxation, Wopke Hoekstra, Commission President Ursula von der Leyen tasked the Commission with identifying innovative solutions for the taxation of the EU’s financial sector to support further integration of the sector, cross-border activity and innovation; whereas the Commission has launched a study on taxation of the financial sector in the EU;

B. whereas financial services are generally exempted from value added tax (VAT) in the EU; whereas financial institutions cannot deduct VAT paid on their inputs because of that exemption, causing the ‘irrecoverable VAT problem’;

C. whereas the VAT exemption dates back to 1977 when taxing financial services was technically unfeasible; whereas technological advances now make such taxation viable and several jurisdictions worldwide have revised similar exemptions;

D. whereas both the Letta and Draghi reports underline that tax fragmentation in the single market obstructs economic growth, trade and cross-border business; whereas EU internal barriers effectively impose a near 100 % tariff on financial services;

E. whereas the taxation of financial services in the EU remains highly fragmented, with diverging national approaches to financial transaction taxes (FTTs), bank levies, financial activity taxes and other profit-based taxes; whereas this fragmentation creates legal uncertainty and complexity, drives market distortions, encourages tax avoidance and reduces the EU’s competitiveness;

F. whereas FTTs and bank levies were discussed after the financial crisis in 2008 and 2009; whereas these measures sought to ensure that the financial sector contributes to public budgets, and to offset the costs of the crisis and curb the negative effects of speculative or high-risk financial activity;

G. whereas at least seven Member States currently levy an FTT; whereas these Member States have not coordinated their FTTs in scope, rate or application; whereas no agreement has been reached on an EU-wide FTT, despite several legislative proposals from the Commission since 2011;

H. whereas Parliament has consistently supported the introduction of an EU-wide FTT, including as a possible own resource, most recently in its resolution of May 2023; whereas in its 2026 work programme, the Commission proposed to withdraw its previous FTT proposal;

Addressing the tax fragmentation of the financial sector and increasing its competitiveness

1. Notes that the VAT exemption for financial services has resulted in a substantial VAT policy gap and a highly fragmented landscape of 91 sector-specific taxes across the Member States to mitigate these revenue losses; notes that this fragmented tax landscape makes compliance more challenging and increases structural barriers to the cross-border expansion of financial services providers, weakening the EU’s financial sector and its investment capacity and undermining the objectives of the Savings and Investments Union and the Banking Union;

2. Highlights that fragmentation of tax rules across Member States and the high mobility of the financial sector’s tax base create opportunities for regulatory arbitrage and capital and profit shifting;

3. Notes that fragmentation of national tax regimes increases the risk of cross-border double taxation and, driven by administrative and legal complexity, can inhibit the growth of the EU’s financial sector;

4. Stresses that removing tax barriers to cross-border investment through coherent EU-level rules would reduce compliance costs, improve market efficiency, enhance legal clarity for cross-border capital flows and strengthen the competitiveness of EU financial services, while simultaneously curbing tax evasion and aggressive tax planning;

5. Notes that, according to the Commission’s 2026 European Macroeconomic Report4, the EU household saving rate remains well above the average of the countries of the Organisation for Economic Co-operation and Development; regrets that around one third of these savings are invested outside the EU, which shows the shortcomings of the EU financial and tax framework in retaining investment;

6. Calls for the tax rules for the financial sector to be clarified to improve capital allocation and strengthen the sector’s competitiveness, while maintaining a high level of consumer protection; calls on the Commission to follow through on its commitment to propose innovative solutions for the taxation of the sector and for further integration at EU level;

Addressing the VAT regime for financial services

7. Notes that technological progress has rendered the original technical justification for the VAT exemption obsolete; takes the view that the status quo perpetuates market distortions, reinforces the self-supply bias in the financial sector and creates competitive disadvantages compared with institutions from non-EU countries;

8. Regrets that repeated Commission initiatives, including its 2007 proposals and the 2020 inception impact assessment, did not result in a reform of the VAT exemption for the financial sector; notes that most recently the Commission intended to publish amendments to the VAT Directive5 in early 2023; observes that these plans were stalled, leaving this essential reform still pending;

9. Notes that, due to the failed reform efforts, the VAT Directive lacks specific provisions for emerging financial instruments, including crypto-assets, decentralised finance and fintech; notes that this has led to divergent national interpretations of VAT rules, legal uncertainty for service providers and uneven treatment between traditional and new financial services and has hindered innovation;

10. Emphasises that, despite the use of VAT grouping and cost-sharing arrangements in some Member States, the outdated VAT exemption, combined with differing compensatory national tax rules, creates a complex, fragmented and incoherent tax landscape, making tax compliance costly and increasing firms’ operating expenses; stresses that clear VAT definitions and simplified rules are needed to reduce these burdens, ensure consistent application of rules across the EU, and support innovation;

11. Stresses that the VAT exemption, especially for clearly identifiable financial charges such as fees and commissions, is no longer fit for purpose; underlines that taxing such charges, unlike margin-based services, can reduce distortions without creating disproportionate administrative complexity;

12. Calls on the Commission to publish a proposal to reform the VAT rules for the financial sector and address the distortions caused by the VAT exemption; emphasises that this reform should take into account distributional consequences, mitigate costs for retail consumers and ensure that the financial sector makes a fair contribution;

Ensuring that the financial sector makes a fair contribution

13. Recalls that the EU faces a significant investment gap of EUR 750 to 800 billion annually to meet its climate, digital and strategic autonomy objectives; recalls the commitment of the Member States and the EU to substantially increase European defence investment; emphasises that fair taxation of the financial sector could mobilise revenue for public investment;

14. Recalls the 2020 agreement between Parliament, the Council and the Commission on a roadmap for the introduction of new own resources, including an FTT; notes that at that time, an FTT with 10 participating Member States would have produced around EUR 3.5 billion per year in public revenue; notes that this figure would have risen to EUR 31 to75 billion with the participation of all the Member States;

15. Regrets that the Commission announced, in its 2026 work programme, the withdrawal of the FTT proposal; urges the Commission to ensure that any proposal for a coherent framework for taxing the EU financial sector presents a concrete plan to address the policy gap created by the withdrawal of the FTT proposal;

16. Emphasises that any forthcoming tax proposal should ensure that the financial sector makes a fair, sound and simple financial contribution under clear and predictable rules; stresses that these rules should safeguard market stability and competitiveness and mitigate costs for retail consumers;

17. Highlights that coordinated temporary windfall taxes can complement long-term sector-wide taxation by providing short-term revenue in times of crisis without destabilising markets or distorting long-term commercial activity; stresses that such temporary taxes should be transparent and proportionate, strictly time-bound and apply only to profits arising from circumstances unrelated to productivity gains or surges in demand; calls on the Commission to bring forward a legislative proposal for the temporary taxation of exceptional profits in the financial sector, ensuring the sector makes a fair and coordinated contribution at EU level in periods of extraordinary macroeconomic circumstances;

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18. Instructs its President to forward this resolution to the Council and the Commission.

EXPLANATORY STATEMENT

At a time when the European Union urgently needs investment, stability and public trust, the absence of a coherent tax framework for the financial sector has become a structural weakness. Over the past decade, the EU has made significant steps towards integrating its financial markets through the Banking Union, the Capital Markets Union and, most recently, the Savings and Investment Union. Yet these projects remain incomplete. As Enrico Letta and Mario Draghi underline in their 2024 reports, tax fragmentation continues to hold back integration, growth and competitiveness across the Single Market.

Fragmented national tax rules impose growing costs on financial institutions, hampering cross-border operations and distorting capital allocation. In a sector that is inherently cross-border and increasingly digital, these inefficiencies weaken EU financial competitiveness and undermine the Single Market. They create unequal conditions between Member States, encourage tax-driven corporate structures, and open avenues for regulatory arbitrage, tax avoidance, and fraud. As Draghi warns, without greater coordination in the taxation of capital investment, Europe will struggle to unlock the growth and the investment it so urgently needs. The consequences of inaction are increasingly evident. The EU faces a major investment challenge, with an estimated annual gap of €750 - 800 billion threatening its ability to deliver on climate, digital and strategic autonomy objectives.

At the same time, despite high levels of household savings, a significant share of these savings is invested outside the Union, reflecting the continued fragmentation of European capital markets. A coherent tax framework for the financial sector is crucial to completing the Banking Union and Savings and Investments Union while enabling the EU financial sector to scale across borders and realise its full economic potential. Without a more coherent approach, the EU risks constraining its ability to mobilise capital effectively and to align financial activity with long-term investment needs. The EU’s framework for taxing the financial sector remains outdated, fragmented and not fit for purpose.

What is more, EU banks have recorded very high profits in recent years, driven not by innovation or improved services, but by exceptional macroeconomic conditions, including post-pandemic recovery, high inflation following Russia’s invasion of Ukraine, and rising interest rates, highlighting the need for a coordinated and predictable framework to ensure a fair contribution of the financial sector in such circumstances.

The VAT exemption for financial services, introduced nearly fifty years ago as a temporary technical measure, is misaligned with today’s economic and technological realities. Rather than promoting a level playing field and Europe’s financial competitiveness, the exemption creates hidden costs, distorts business models, discourages outsourcing and innovation, and places some firms - particularly fintech and digital financial services - at a competitive disadvantage.

Beyond the outdated VAT framework for the sector, a patchwork of uncoordinated national taxes across Member States - ranging from financial transaction taxes and bank levies to ad hoc windfall taxes - has emerged in the absence of an EU-wide approach. This fragmentation weakens the Single Market, increases uncertainty for investors, and risks undermining financial stability while delivering uneven and short-term fiscal outcomes.

The repeated failure to agree on an EU-wide Financial Transaction Tax, and the Commission’s decision to withdraw the proposal from its 2026 Work Programme, leave a clear tax policy gap. Without a coherent alternative, the EU risks drifting further into regulatory inconsistency, missed revenue opportunities and declining public confidence in the fairness of the financial system.

This report argues that the status quo is no longer tenable. Reforming the VAT rules for the financial sector is necessary, though it is far from a complete remedy. Given the technical complexity of taxing financial services, the report does not pre-empt the final design of such a reform and recognises the importance of the Commission’s ongoing study in informing future policy choices. The EU must move decisively towards a modern, integrated and progressive tax framework for the financial sector - one that matches the reality of cross-border finance, secures fair and predictable revenues, and supports long-term investment and stability.

Accordingly, your rapporteur advocates for a balanced mix of reforms to secure public revenues for shared priorities while safeguarding financial stability, long-term investment and market efficiency, notably by:

• Modernising the VAT treatment of financial services to correct structural flaws, remove hidden costs and distortions, level the playing field, and boost EU competitiveness and innovation in digital and fintech services;

• Advancing coordinated EU-wide taxation where feasible, to reduce fragmentation and arbitrage, strengthen the CMU and SIU and allow EU financial markets to scale across borders; and

• Developing common EU minimum standards for temporary windfall taxation, to ensure predictability and coordination and alignment of exceptional profits with long-term public investment priorities.

Ultimately, a coherent tax framework for the EU’s financial sector is a political choice. It is a choice between continued fragmentation, short-term political caution and inertia, or ambition, coordination and fairness. At a moment of profound economic and geopolitical challenge, the European Union cannot afford further delay.

ANNEX: DECLARATION OF INPUT

Pursuant to Article 8 of Annex I to the Rules of Procedure, the rapporteur declares that he included in his report input on matters pertaining to the subject of the file that he received, in the preparation of the draft report, from the following interest representatives falling within the scope of the Interinstitutional Agreement on a mandatory transparency register1, or from the following representatives of public authorities of third countries, including their diplomatic missions and embassies:

1. Interest representatives falling within the scope of the Interinstitutional Agreement on a mandatory transparency register

Union Network International-Europa (UNI Europa)

Österreichisches Institut für Wirtschaftsforschung (WIFO)

Association for Financial Markets in Europe (AFME)

Reclaim Finance

Citigroup Inc.

The list above is drawn up under the exclusive responsibility of the rapporteur.

Where natural persons are identified in the list by their name, by their function or by both, the rapporteur declares that he has submitted to the natural persons concerned the European Parliament’s Data Protection Notice No 484 (https://www.europarl.europa.eu/data-protect/index.do), which sets out the conditions applicable to the processing of their personal data and the rights linked to that processing.