German banks fear losing out to European rivals, hurt by back-up fund tax rule

Thu May 8, 2014 9:53am EDT

Related Topics

* German banks want fund payments to be tax-deductible

* German government resolute, fears public outcry

* Berlin pushing for other European countries to conform

BERLIN/FRANKFURT, May 8 (Reuters) - German banks will lose out if, unlike their European rivals, they cannot deduct from taxes their contributions to a new 55 billion euro ($77 billion) bank resolution fund, the German Lenders' Association said on Thursday.

The German government does not want the euro zone banks' payments into the fund to be tax-deductible, saying it wants to keep costs low for other taxpayers and to avoid accusations that it is being too lenient on banks.

Under current rules, German banks cannot deduct from their taxes any contribution to Germany's national rescue fund, which the new Europe-wide fund will replace.

Berlin wants to keep it that way but has been unable to ensure that banks in other countries will do the same, causing German banks to cry foul.

"It should be guaranteed that these contributions are treated consistently in terms of taxation across the EU, if only to avoid distorting competition between the financial centres," said Steffen Steudel, spokesman for the German Lenders' Association.

European leaders decided earlier this year to complete a long-planned banking union which included the establishment of an agency to shut failing euro zone banks and a common fund to which banks would contribute over a period of eight years.

"It is a core concern for the German government to minimise the costs of a bank resolution for the taxpayer," said Finance Ministry spokeswoman Nadine Kalwey when asked about the banks' concerns over being put at a disadvantage.

Berlin wants the rules on tax deduction to be "as consistent as possible" across Europe but the regulation on which the Single Resolution Fund (SRF) is founded does not cover questions regarding tax, Kalwey said.

Germany therefore wants the tax issue to be handled in a separate intergovernmental agreement which is under discussion. If this fails, each country will decide on its own whether contributions to the fund will be tax-deductible.

German banks will pay an expected total of 1.9 billion euros a year towards the fund. That the lenders will get their way looks unlikely as the German government's mind seems made up.

"We are against the ability for banks to deduct their contribution from taxes," said Ralph Brinkhaus, deputy head of Chancellor Angela Merkel's conservative Christian Democrats in parliament.

"We urge our European partners to do the same so that there will be no competitive disadvantages for German banks."

The European Commission is expected to present its proposal on how to finance the fund by September. ($1 = 0.7183 Euros) (Reporting by Annika Breidthardt, Matthias Sobolewski in Berlin and Andreas Kroener in Frankfurt; Writing by Annika Breidthardt; Editing by Raissa Kasolowsky)

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