Tax Matters

SIMPLIFICATION AND COMPETITIVENESS

As tax rules and reporting obligations expand, banks face growing operational and compliance burdens, especially for cross-border activities. To ensure banks can continue financing households, businesses, and key EU priorities, it is essential to avoid additional undue layers of taxation.

A stable and proportionate tax framework is critical for both compliance and the competitiveness of the EU banking sector, enabling banks to allocate resources efficiently, serve the real economy, and compete globally, while maintaining tax transparency and public policy objectives.

The European Banking Federation (EBF) published its "Simply Competitive” report, urging EU policymakers to make simplification a strategic priority in regulating the financial sector. The report outlines recommendations across seven areas, including taxation, to ensure a balanced, fair, and competitive environment that allows banks to remain resilient, competitive, and at the forefront of financing Europe's future.

VAT

Under the current EU VAT Directive (2006/112/EC), financial services are generally VAT-exempt. While intended to simplify taxation, this exemption creates a “hidden VAT” cost for banks, as they cannot reclaim input VAT on goods and services used to provide exempt financial services. This reduces VAT neutrality, places EU banks at a competitive disadvantage, and often leads to higher costs for consumers.

Given the evolving business models of banks and the growing digitalization of financial services, the current VAT framework requires urgent review. The EU should focus on modernising the VAT framework for financial services to ensure neutrality, legal certainty, and a level playing field across sectors and Member States. Any reform should therefore prioritise administrative simplification, greater consistency and stronger harmonisation.

Sector-Specific Taxes

After the Global Financial Crisis, regulatory reforms and fiscal measures were introduced. Additional proposals, such as Financial Transactions Taxes (FTTs), Financial Activities Taxes (FATs), and windfall taxes, have also emerged at the national level. The European Central Bank (2023, 2024) and the International Monetary Fund (2024) have warned that such measures can weaken financial resilience.

To protect banks’ core gatekeeping and funding functions, it is essential to avoid new taxes or levies that could distort competition, reduce lending, or raise costs for EU citizens and businesses. At the same time, the EU should simplify and harmonise regulations to reduce fragmentation, ease compliance, support cross-border operations, and strengthen the Single Market.

Banks already contribute a significant share of the financial sector tax burden. With a view to ensuring that banks can continue to effectively support the funding of the EU’s strategic priorities, it is important to recognise that overburdening banks with additional levies could pose long-term economic risks. The tax and regulatory framework must remain fair, efficient, and proportionate in order to support the EU’s strategic objectives.

Tax Reporting (Automatic Exchange of Information)

Banks play a crucial role in implementing the EU transparency agenda, particularly under the Automatic Exchange of Information (AEOI) framework, supporting authorities in combating tax evasion. Their responsibilities include identifying reportable accounts, conducting due diligence, and transmitting accurate information to tax authorities.

EU financial institutions operate in a complex reporting landscape, spanning domestic, EU-wide, and international obligations.

Together, the Foreign Account Tax Compliance Act (FATCA), the OECD’s Common Reporting Standard (CRS), the OECD’s Crypto-Asset Reporting Framework (CARF) and the EU Directive on Administrative Cooperation (DAC) form the backbone of global tax reporting and information exchange. Within this complex framework of domestic, EU and international rules, EU financial institutions are required to report information on income payments (under CRS/DAC2), on cross-border arrangements (under DAC6) and on transactions involving crypto-assets (under CARF/DAC8). Compliance must also respect data privacy rules, including the GDPR.

The complexity of tax reporting frameworks can create overlapping or duplicative obligations, imposing substantial administrative burdens on banks and risking inefficiency. It is essential to avoid overloading financial institutions with duties beyond their core intermediary role and to harmonize and simplify reporting frameworks, aligning them with international standards. Efforts should focus on streamlining obligations to reduce unnecessary compliance costs while maintaining transparency objectives.

Withholding Tax Relief

As gatekeepers of the financial system, banks act as intermediaries in withholding tax procedures. The FASTER Directive (Council Directive (EU) 2025/50) marks a major step toward harmonizing EU withholding tax relief and refund systems. By streamlining and digitalising these processes, it aims to reduce costs and barriers, promote cross-border operations, and enhance the Single Market’s attractiveness for investors.

The FASTER Directive on withholding tax procedures needs a fundamental reassessment to ensure it delivers genuine simplification for investors and intermediaries. The EBF calls for harmonised relief-at-source or quick refund procedures, streamlined reporting, proportionate due diligence requirements, and clear definitions to reduce legal uncertainty.

The current directive requires careful reassessment to ensure it delivers genuine simplification for both investors and financial intermediaries. A balanced approach is essential to maintain transparency while respecting privacy and ensuring the long-term sustainability of the EU tax framework.

Corporate Income Tax

The EU’s corporate income tax framework is undergoing significant transformation, driven by international tax developments, digitalisation, and the push for greater fairness and transparency. While these changes pursue legitimate objectives, they have increased complexity and legal uncertainty for banks operating across multiple Member States.

The implementation of Pillar Two, combined with existing EU measures such as the Anti-Tax Avoidance Directive (ATAD), has resulted in overlapping and duplicative corporate tax requirements and a growing administrative burden for EU businesses.

To address these challenges, the EU must modernise its corporate tax framework to ensure it is fit for purpose across the Single Market. The EBF advocates for a competitive, stable, and coherent corporate income tax environment that supports business in Europe. In this context, upcoming reforms should prioritise the simplification of corporate income tax rules, reduce unnecessary compliance obligations, and ensure that taxation acts as a lever for competitiveness and sustainable growth, incentivising the investments needed for the digital and green transitions and to support EU defence priorities.