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Monday
Jan042010

Bankers Bonus tax introduced in France and likely to be shared internationally

French Finance Minister Christine Lagarde has followed in the footsteps of Britain's Alistair Darling and introduced a Banking Bonus windfall tax. German Chancellor Angela Merkel has been reported as saying that she is sympathetic but the policy might not be legal in Germany.

Despite threats from the Banking Industry that imposing a tax would lead to a mass exodus of 'banking talent' from the City of London as bankers voted with their feet and moved to countries with more advantageous tax regimes, Chancellor Darling recently announced plans for a one-off 50% levy on any individual discretionary bonus paid above £25,000. The 'super tax' came into effect immediately and will cover bonuses paid until April 2010 as part of his pre-Budget report. Bankers will still have to pay income tax on any bonus they receive as usual.  In the French version any bonus above 27,000 Euros ($39,000; £24,000) will be taxed at a rate of 50% on payments issued in 2010.

On one hand this short-term imposition could prove bad news for the UK and French economies as high tax paying talent, which already generates billions in taxes, leaves the system. There is also the argument that the competitiveness of both London and Paris as international financial centres might be jeopardized. It’s a feeling that is not shared, however, by boss of Deutsche Bank’s Josef Ackerman who believes that London's position is safe.

'If people think one measure could jeopardise the strength of a financial hub, they are dead wrong. This is not going to happen,' he told the BBC.

Conversely the move is projected to raise £550m, which would be directed at trying to alleviate unemployment in the UK. In addition, on a political level, Darling gets to be seen to be 'doing the right thing,' and being sensitive to the nation's outrage at what many see as excessive and inappropriate rewards earned on the back of public financial support.

How much any of the new legislation will directly affect individual bankers is a moot point as many banks including Ackermann's Deutsche Bank are considering spreading the impact of the UK's bonus tax among its staff worldwide.

If the tax is paid out from the bonus pool, “we will clearly globalise it... It would be unfair to treat UK bankers differently," said Mr Ackermann.

 



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