Opting for Opting‐In? An Evaluation of the European Commission's Proposals for Reforming VAT on Financial Services*

Feria, Rita de la; Lockwood, Ben

doi:10.1111/j.1475-5890.2010.00111.x

Cited by 19 publications

(7 citation statements)

References 13 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This figure of unrecoverable input taxes is very similar to the number of e 4.846 Billion of hidden input taxes for 2006 in Germany calculated by de la Feria andLockwood (2010). However, based on their differing estimate of the share of unrecoverable input taxes, they argue that tax shifting is not important.…”

supporting

confidence: 77%

“…European VAT Directive includes an optional clause, which allows all member states to legislate for opting for taxation of financial services, Germany is one of the member states where it is possible to opt for taxation of B2B transactions in the financial sector (de la Feria and Lockwood, 2010). This might provide the financial sector in Germany with more leeway to shift input taxes than is available in other countries.…”

Section: Revenue Effectsmentioning

confidence: 99%

“…8 German VAT Act (UStG) determines that among other things provision and intermediation of loans and deposits are exempted from VAT. However, in Germany as well as in other countries of the European Union, in the exempted parts of their business, financial service providers may opt for taxation(De la Feria and Lockwood, 2010). While B2C transactions would remain exempted, financial institutions can opt for a taxation of B2B transactions ( §9 I UStG).…”

mentioning

confidence: 99%

See 2 more Smart Citations

Revenue and welfare effects of financial sector VAT exemption

Buettner

Erbe

2013

Int Tax Public Finance

View full text Add to dashboard Cite

This paper provides an analysis of revenue and welfare effects associated with a VAT exemption of financial services, which is common among OECD countries. We follow a general equilibrium approach which takes account of the input-output structure of the economy. This allows us to discuss the various effects of repealing the VAT exemption not only on consumer demand and intermediate-input demand but also on labor supply. We derive formal expressions for revenue and welfare effects, which can be quantified with a minimum of information about behavioral effects. Using VAT statistics as well as national accounts we compute the effects of repealing the VAT exemption in Germany. Our baseline estimate indicates that tax revenues would increase by some e 1.2 billion or 0.9% of VAT revenues (excluding import turnover tax). If the revenue gains are used to finance a reduction in the distortive labor tax, however, our results point at a modest welfare gain of e 0.675 Billion.

show abstract

supporting

confidence: 77%

Section: Revenue Effectsmentioning

confidence: 99%

mentioning

confidence: 99%

See 1 more Smart Citation

Revenue and welfare effects of financial sector VAT exemption

Buettner

Erbe

2013

Int Tax Public Finance

View full text Add to dashboard Cite

show abstract

“…This is, of course, analogous to the original Diamond-Mirrlees result, which states that inputs to production should be untaxed as long as there are constant returns to scale (or 100% profit taxation), but taxed if there are decreasing returns to scale (Stiglitz and Dasgupta 1971). 10 Currently, within European Union countries, most financial intermediation services are exempt from VAT, notably financial services which are not explicitly priced (De La Feria and Lockwood 2010;PWC 2011;Buettner and Erbe 2014). 11 See also the recent IMF proposals for a Financial Activities Tax levied on bank profits and remuneration, one version of which -FAT1 -would work very much like a VAT (IMF 2010).…”

Section: Related Literaturementioning

confidence: 86%

How should payment services be taxed?

Lockwood

Yerushalmi

2019

Soc Choice Welf

Self Cite

View full text Add to dashboard Cite

This paper considers the design of taxes on real money balances and bank payment services, when realistically, the household can use either cash or a bank payment account for the purchase of different varieties of goods. These taxes, plus a consumption tax, fund a government revenue requirement. We find that generally, real money balances and bank transaction fees should be taxed, and at different rates, i.e. the tax system should not leave the choice of payment services undistorted. For a wide class of time transactions cost technologies, including the Baumol-Tobin case, fees should be taxed at a lower rate than real money balances, and the tax on real money balances should be positive. However, it is possible that fees should be subsidized. The rate of tax on fees has no simple relationship to the optimal consumption tax, and can be higher or lower. A Corlett-Hague type intuition for these results is also developed, which relies on the concept of a virtual time endowment.JEL Classification G21 · H21 · H25 ) which consider a transactions cost theory of money demand, or Chari et al. (1991, 1996), where some goods can be bought on costless credit. More recent models include a more micro-founded search theoretic demand for fiat money e.g. Aruoba and Chugh (2010), but existing models of this type do not include a banking sector. The literature is surveyed in Kocherlakota (2005) and Schmitt-Grohe and Uribe (2010). 2 As a result of these trends, the provision of payment services is an increasing source of both activity and profit for banks and payment network operators, such as VISA and Mastercard. For example, in the United States, the fee averages approximately 2% of transaction value. This is giving rise to large and growing revenues and profits for both banks and the operators. For example, DeYoung and Rice (2004) estimate that in the US in 2003, non-interest income accounted for half of all bank income, and 52% of non-interest income was generated by fees associated with payment accounts. Visa, the largest payment network operator, had gross income and profit of $18.36 bln. and $11.69 bln. in the 2017 financial year. 4 On average, in the EU, consumption is about 70% of GDP. Also, as a rough approximation, about 50% of total transactions are non-cash. So, the percentage is 1%/(0.7 × 0.5)=2.8%. 5 So, a payment account is what is known as a checking account in the USA, and a current account in the UK. 6 These fees are known as merchant discount fees. The bulk of this is made up of a change for card use by the card-issuing bank, known as the interchange fee, and the reminder of the merchant discount fee goes to the card company and the acquiring bank. 7 This is discussed formally in Sect. 3.4.

show abstract

“…Both are empirical questions. There have been a few attempts in the economic literature to quantify the VAT losses deriving from exemption for financial services, and most studies point to a net revenue loss (Genser and Winker 1997;Huizinga 2002;De la Feria and Lockwood 2009). This advantage is estimated to be around 0.15 per cent of GDP (Huizinga 2002), which for the EU27 translates into close to €20 billion.…”

mentioning

confidence: 99%

Taxation and the Financial Crisis

Alworth¹,

Arachi²

2012

View full text Add to dashboard Cite

BookTaxation and the Financial Crisis Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.

show abstract

Opting for Opting‐In? An Evaluation of the European Commission's Proposals for Reforming VAT on Financial Services*

Cited by 19 publications

References 13 publications

Revenue and welfare effects of financial sector VAT exemption

Revenue and welfare effects of financial sector VAT exemption

How should payment services be taxed?

Taxation and the Financial Crisis

Contact Info

Product

Resources

About