Brussels, 23/05/2012 (Agence Europe) - With a large majority (487 votes for, 152 against and 46 abstentions) adopting the report by Anni Podimata (S&D, Greek), as amended at the committee on economic and financial affairs (see EUROPE 10602), the European Parliament called in plenary, on Tuesday 22 May, for a financial transitions tax (FTT) across the EU or at a lower level, as part of enhanced cooperation.
Although the Parliament was only consulted on this dossier which requires Council unanimity, the broad consensus reached in favour of the FTT delivers a powerful signal to the heads of state and/or government meeting in Brussels on Wednesday for an informal summit on growth, as well as to the finance ministers who will resume discussion on the dossier on 22 June. It is, however, difficult to imagine that the vote will bring any radical changes to the Council position, as the British government - backed by Sweden, Cyprus and Malta - remains fiercely opposed to the tax, fearing that the European financial sector will lose its competitiveness and that financial activity will be relocated outside Europe. Other countries, such as Ireland, Italy and Luxembourg, are in favour of a FTT, as long as it is applied throughout the EU.
The text adopted keeps to the broad lines of the proposal presented by the European Commission last October but extends its scope, preferably in favour of a tax that is not so all-embracing (after the fashion of the British stamp duty), which is more likely to gather unanimous Council consensus in the short term. It thus provides for a tax to be applied to all financial transactions carried out between institutions, of which at least one has its seat on EU territory (residence principle), but also to those negotiated outside the EU on securities issued within the EU (issuance principle). Another principle upheld is that of legal ownership, whereby the buyer of a financial instrument issued in the EU must pay the tax in order to be able to become the legal owner. This combination of criteria would leave very few loopholes for evading the tax which would be imposed on all financial institutions, except pension funds. The rates decided - 0.1% for shares and bonds and 0.01% for derivatives - are low in order to avoid over-penalising the financial sector and turning investors away from the European market.
Furthermore, transactions on the primary market (the purchase of bonds by the issuer when such bonds are first of all placed on the market) will be exempted from the tax, in order to ensure that investment of benefit to the real economy is not taxed.
Also outside the scope of the tax would be most day-to-day transactions made by ordinary consumers (insurance contracts, mortgages, consumer credit, payment services, etc.). The planned timetable remains the same as that set by the Commission: adoption of the European text before 1 January 2014 so that the tax can be applied in member states by 1 January 2015.
The resolution passed recommends an FTT applied in all 27 member states, a move which could possibly encourage the rest of the world to follow suit. However, the regulation says that, if it should prove impossible to reach agreement in Council, enhanced cooperation should be considered. MEPs acknowledge, however, that introducing the tax in a very limited number of member states could lead to the single market being undermined and that measures should therefore be taken to prevent this. The opinion does not request that the revenues from an FTT be transferred to the EU budget. It does indicate that, if the revenues are placed into the EU budget, then this would reduce national contributions to the budget. The rapporteur says that these contributions could be reduced by up to 50%.
During the debate, most MEPs highlighted the benefits of such a tax: making sure the financial sector shoulders some of the cost of the crisis, discouraging speculation and providing greater stability in the financial system, providing a further resource for national budgets or the European budget that would allow taxes to be reduced or would finance investment for growth or development initiatives. The areas of friction among the groups backing the tax related principally to: - exempting pension funds and Undertakings for Collective Investment in Transferable Securities (UCITS) from the tax: the Commission proposal, backed by the Socialists, the Greens and the GUE, ruled out any such exemption, the EPP succeeded in winning it for pension funds; - how the revenue generated is to be used: some EPP Group MEPs would like it to be new own resources to be used exclusively for the EU budget, thereby reducing member states' contributions; others, from the S&D Group, would like it to be a productive investment instrument to be used to fund growth and tackle poverty (GUE, Greens/EFA). Unsurprisingly, criticism of the tax came mainly from UK Conservatives who argued that the tax would damage the competitiveness of the European financial sector and the City, and could cause companies to relocate to Asia, for instance. Others highlighted the on consumers of a tax, the costs of which will be passed on to them by the financial institutions. The debate now moves back to the Council. (FG/transl.jl/rt)