Brussels, 14/02/2013 (Agence Europe) - On Thursday 13 February 2013, the European Commission unveiled a draft directive on the introduction of a financial transactions tax (FTT) by 11 member states on 1 January 2014 by means of “enhanced cooperation.”. The 11 nations account for two-thirds of EU27 GDP and the tax is expected to net between €30 billion and €50 billion a year, to be shared among the 11 nations (Germany, Austria, Belgium, Estonia, France, Greece, Italy, Portugal, Slovakia and Slovenia) in an as yet unspecified manner.
The objectives of the FTT are the same as those set out in the draft FTT legislation published for the EU27 in September 2011, which did not come to anything due to lack of unanimous agreement. The aims of the tax are to get the financial sector to pay its fair share of tax to national coffers; reduce market segmentation by harmonising similar taxes already existing at national level by deciding what the tax shall be levied on and minimum tax rates, leaving the 11 countries free to set tighter rules; and discouraging high-frequency trading that does nothing to improve financial efficiency or feed the real economy.
Upon request from the 11 countries, the Commission has included key aspects of the 2011 draft legislation, adjusting it to the nations involved in the enhanced cooperation and making a few changes. The tax would apply to as wide a range of transactions as possible but avoid discouraging operators. In order to avoid companies shifting financial transactions to countries that do not levy the FTT, the Commission has added a residence criterion for the body carrying out the deal so that the new FTT will cover all transactions (buying, selling, lending, borrowing, transfer of property, and signing or amending derivatives deals) on the secondary market wherever there is a clear economic link between a party to the transaction or the financial product and one or more of the 11 participating countries. The tax is to be 0.1% for all sales and bonds deals and 0.01% for derivatives when at least one of the parties to the deal has a headquarters in one of the 11 countries in question or acts on behalf of an economic operator registered in one of the 11; and it will also cover financial products issued by an institution with a headquarters in one of the 11 countries, even if the parties doing the deal itself are located outside the 11. Anti-abuse clauses have been added to the draft legislation.
The tax would not apply to financial deals on the primary market, common transactions by individuals or small businesses (loans, payments, insurance, savings and traditional investment bank business, such as raising capital and restructuring). Refinancing transactions, monetary policy and management of public debt are also exempt (in other words transactions with central banks, the ECB, the EFSF, the ESM and the European Union as a body).
When both parties to a deal are located outside the 11 countries, the FTT would be collected from sales and purchases and to avoid double taxation within the 11, all clearing would have to be carried out in the country where the deal is done. The Commission has not ruled out the possibility of double taxation of deals if one of the countries involved, which is not one of the 11, levies its own tax, such as the United Kingdom's stamp duty.
How exactly the income is to be divided up among participating countries has yet to be negotiated. If agreement cannot be reached, then it would be divvied up on the basis of GDP (the Commission has published GDP estimates to this effect).
The draft legislation will now be submitted to the European Parliament for its opinion and will be examined by all 27 member states, so amendments are likely. All the member states will be involved in the negotiations, but only the 11 participating countries will have the right to vote. Decisions must be unanimous. During the talks, the 11 countries will have the option of withdrawing, but once the vote has been taken, they must pledge to levy the tax. Any other country is free to join at any time
The publication of the details has already generated reaction, particularly from the British government, which fears the FTT will have a negative impact on the City of London's role and says the new tax will penalise growth in the partipating member states. It says it will carefully examine how the tax will impact on non-participating countries and the single market. Similar reactions were made by BusinessEurope, which says the FTT will have a negative impact on growth and jobs. Positive reactions have come from Social Democrats and Greens at the European Parliament, who welcome the Commission's plans as an important step forward. (FG/transl.fl)