Brussels, 28/10/2014 (Agence Europe) - The Italian Presidency of the Council of the EU will definitely be putting the financial transactions tax (FTT) on the agenda of the forthcoming Ecofin meeting, on Friday 7 November. An agreement is by no means in sight, but it is calling on the Council to note the progress made and to resolve the questions it has listed in a document dated 27 October, which it will present to this Thursday's Coreper. The eleven countries participating in enhanced cooperation on the FTT (Belgium, Slovenia, Germany, Spain, Greece, Italy, France, Austria, Estonia, Portugal and Slovakia) decided in May of this year to agree by the end of 2014 on the outlines of the initial application phase of the FTT, for 1 January 2016. The scope of application on derivatives and the principle of taxation “remain an important open question”, which is standing in the way of the Italian Presidency putting forward a compromise, it notes.
On the taxation of shares, the Presidency states that although the scope has been defined, a bit of tweaking is still needed, such as the request by certain states for flexibility to exempt transactions in shares in small companies from the FTT.
To respond to this concern whilst guaranteeing a balance between the size of the various markets and appropriate level of harmonisation, the Presidency proposes that the states be authorised to exempt transactions in shares in listed companies, if their level of market capitalisation is below a certain percentage of the total market capitalisation of companies in the state in question on a date close to the end of the previous year. This solution is acceptable to most of the delegations, the Presidency stresses.
In response to a number of countries which would also prefer not to tax transactions in shares in unlisted companies, the Presidency takes the view that the best solution would be to leave the option open to the states to tax unlisted shares in their companies.
As regards the taxation of certain derivative products to be included in the first application phase of the tax, the Presidency has consulted experts from the ECB. These illustrated the various questions which could be raised with the taxation of different categories of derivatives in terms of effects on the monetary policy and the financial markets.
The question which arises is the fate of interest rate derivatives. Some states have expressed concern as these instruments are linked to the government bond market and are also used in monetary policy measures. These states would rather start by taxing other derivatives andwaiting for the next stages before taxing interest rate derivatives. Some states would also prefer to tax the acquisition of certain types of credit default swap, whilst others, among them France, want to exempt derivatives.
The question of the principle of taxation is important for the smaller countries, such as Belgium and Slovenia, which fear they could be put at a disadvantage in terms of revenue distribution if the principle of state of issuance is applied as a taxation principle (EUROPE 11180). The large countries are in favour of the application of this principle, taking the view that this approach will guarantee the effectiveness of the implementation of the tax and prevent the risk that transactions will be moved outside the FTT zone.
The areas on which the Presidency hopes to work to break this deadlock, in other words several theoretical combinations aiming to allow the allocation of the revenue to take account of various parameters (the principle of residency, a combination of the two principles, an economic factor, etc), did not allow the delegations to agree on “the solution of revenue distribution that would be acceptable to all of them”, it writes. (EL)