Banks, here is how extra-profits are taxed in Europe

Elizabeth Smith

Italy has decided to introduce a tax on banks’ extra-profits in order to help mortgage holders. However, the country has already been preceded in this by many other nations in Europe. From Spain all the way to Lithuania or the Czech Republic, here is how it was decided to act at the European level.

Taxes on banks’ extra-profits

Italy is introducing a tax on banks’ extra profits, following suit with many other European countries. There are numerous executives in Europe who act on the profit boom resulting from the interest rate hike that was initiated by the ECB. This, in order to raise money for struggling households and businesses.

A measure that has already active in nations such as Spain, Sweden, the Czech Republic or Lithuania. And that is also under discussion in other major countries such as France or even Great Britain.

Extra profits are calculated with regard to banks on the interest margin. That is, the difference between interest income and interest expense.

Interest income is what the bank gets to collect for granting mortgages or loans. While interest expense consists of what the bank itself has to pay customers on deposit accounts or current accounts. In short, extraprofits are all those extra earnings that a bank collects from higher interest rates.

The taxation of banks’ extra-profits in Europe

Looking at the rest of Europe, one could start with the example of Spain. The Iberian government’s goal is to get to collect about three billion euros by 2024 from the bank tax that passed during the course of last year. It all consists of a 4.8 percent charge on net fee and interest income above 800 million euros.

Turning to France, Macron said how all those companies with more than five thousand employees should aim to share more of their huge profits with the employees themselves. However, the French president, at the same time, wanted to rule out the possibility of a tax on extra profits.

In Britain, London has not wanted to impose any tax on banks’ capital gains. Already since 2011, however, there is a tax on the assets on the global balance sheet of all British institutions and those linked to all operations of foreign banks in Britain itself.

In Germany, banks’ net interest income experienced an increase of 50 to 70 percent compared to the covid period. A factor that has prompted many to bring up the use of the extra-profits tax. This, although Finance Minister Christian Lindner wanted to rule it out.

In Hungary, the Hungarian government wanted to change through a decree dating back to last June the taxes on extraprofits in some pivotal sectors of the economy. While in Lithuania the parliament approved last May a tax on banks’ net interest income for both 2023 and 2024.

In the Czech Republic, the lower house of the Czech parliament wanted to approve last November a 60 percent tax on all those bank profits that come to exceed the threshold of 120 percent of average annual turnover between 2018 and 2021. The aim is specifically to be able to raise about 3.5 billion euros. This, to be able to more strongly support aid to families and businesses hit hard by rising gas and electricity prices.

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