- Urgent Reform Needed: The European Parliament’s Committee on Economic and Monetary Affairs (ECON) has released a draft report on February 4, 2026, urging comprehensive reforms to the EU’s tax system for financial services. The report highlights the outdated VAT exemption for financial services, established in 1977, which prevents firms from charging VAT or reclaiming paid VAT, creating inefficiencies particularly for digital and fintech companies.
- Fragmented Tax Landscape: The lack of unified VAT rules across the EU has led to a complex and costly patchwork of 91 different taxes specific to the financial sector. This fragmentation complicates operations for financial firms operating in multiple countries, resulting in higher costs and limited choices for businesses and consumers, as well as significant investment flowing outside the EU.
- Proposed Reforms and Alternatives: ECON calls for the European Commission to propose reforms to VAT rules for financial services, advocating for the taxation of identifiable charges like fees and commissions. The report also criticizes the withdrawal of the EU-wide Financial Transaction Tax proposal and suggests implementing temporary windfall taxes on exceptional bank profits arising from recent interest rate increases, emphasizing the need for coordinated and transparent tax measures for the financial sector.
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