Brussels, 28/09/2011 (Agence Europe) - In Strasbourg on 28 September 2011, the European Commission unveiled its draft legislation to introduce a financial transactions tax (FTT), the initiative being announced by the President of the European Commission, José Manuel Barroso, in his State of the Union speech, followed by an address by EU Taxation Commissioner Maroš Šemeta (see EUROPE 10458 and 10461). The idea is that the FTT would apply in all twenty-seven member states from 1 January 2014 onwards and be levied on all financial transactions among financial institutions if one or more of the parties is registered in the EU.
The legislation takes the form of a draft Council of Ministers' directive, based on Article 113 of the EU treaty and therefore requiring unanimous decision-making. This implies that there will be tough negotiations between the countries in favour of the tax (the majority) and countries like the United Kingdom which fear that if applied solely in the EU, then it would cause financial bodies to leave Europe as set up elsewhere. The European Commission is confident, however, and expects 65% of Europeans and most member states to back the idea. The income raised (estimated at some €57 billion a year) would be divided up “fairly” (the details of this remain to be decided upon) between the EU budget and the budgets of the member states.
Objectives. The objectives are two-fold: 1) getting the financial industry to pay its fair share towards the EU budget and to restore public coffers depleted by having to bail out banks and other financial crisis-related costs mostly caused by the financial industry itself. Before the crisis, the financial industry often worked for the short-term and abused the system, explained Commissioner Šemeta, explaining that the industry is in a privileged position when it comes to VAT (not having to levy it) and this leads to losses of around €18 billion a year for the member states; 2) ensuring EU harmonisation of indirect taxation rules for financial transactions in the EU in order to unify the market, even out the uneven playing field, discourage risky transactions and back other legislation to head off further crises. Ten member states, Belgium, Cyprus, France, Finland, Greece, Ireland, Italy, Romania, Poland and the United Kingdom, already levy similar taxes and the Commission wants to establish a common group of rules to levy the same tax in the same way across the EU27, if possible. There is also the wider aim of putting the EU in a leading position among its global partners, particularly the United States, to convince them that a FTT at global level is not only practical, but is also desirable, not only to restore public finance and reduce speculation, but also to provide cash for aid and tackling climate change.
Practicalities. The Commission recommends - levying the tax on as many products as possible to make it difficult to wriggle out of; - as low a tax rate as possible, to limit the cost to financial institutions; - eligibility to be determined by official residence to avert the danger of companies relocating to avoid having to pay the tax. The sale of shares and bonds between banks, at least one of which is located within the EU, would be taxed at 0.1%, for example and derivative deals at 0.01%. Transactions on the primary market would not be covered, and neither would the issuing of stocks, shares and bonds or the routine transactions carried out by small business and private individuals (mortgage lending, bank loans, insurance, etc). The tax would be deducted, however, by banks when an individual buys stocks, shares or bonds, however, explained the commissioner. Financial institutions would be responsible for collecting the tax, which would be transmitted to the state the same day (for online deals) or within three working days for other forms of transaction.
The tax would be levied on 85% of transactions between financial institutions and is aimed at acting as an obstacle to high-frequency trading (deals triggered automatically online once prices reach a certain level), which make up 40% of all transactions. It is also aimed at netting, which accounts for 18% of deals. The tax would therefore have a greater impact on institutions processing large volumes of this type of deal which would have to revise their business models and focus more on the real economy, explained the commissioner.
Setting out the advantages of taxing transactions rather than banks themselves, the commissioner said that to raise the same amount of income, a tax on banks would have to be higher and this would negatively impact on growth, but the Commission has decided to target purely financial transactions, particularly high-frequency deals that cause unpredictable surges and slumps on the markets.
In reply to a question about whether the legislation could actually get onto the books (given the fact that the United Kingdom would probably veto it), the Commissioner said that the draft text provided a tangible basis is for ministers to negotiate and said that an FTT would be beneficial for the UK because it would provide revenue and enable it to pay less to the EU budget. (FG/transl.fl)