Alternative Investment Management Association
In September 2011, the European Commission issued a Proposal for an EU-wide Financial Transaction Tax (FTT) Directive, at 0.1% for transactions in bonds and equities, and 0.01% for derivatives transactions (on notional value) and with effect from January 2014.
The proposed FTT contained these features:
After protracted negotiations and discussions among Member States, in June 2012, the Council reported no unanimous approval for the FTT and that alternatives, including introducing FTT by ‘Enhanced Cooperation Procedure’ (ECP) among a minimum nine States, should be explored. In October, the Commission published a draft proposal, supported by 10 States, to implement a FTT in broadly similar terms to that proposed in 2011 and to be effective at some point in 2013.
The proposal must be debated by the Council and, if authorised, that would allow the measure to beimplemented by several EU Member States rather than on an EU-wide basis. The proposal will be discussed at the ECOFIN meeting on 13 November 2012. The Council’s approval, by a “qualified majority” of Member States, is required, as is the consent of the European Parliament. The Council working group on taxation will then begin to analyse the proposal and Member States will begin negotiations. The Council will hold working groups in which all 27 Member States are present and may present opinions and concerns, although only those involved in the ECP are entitled to vote on the proposal; the vote to adopt it must be unanimous.
In the Commission’s view, a common FTT applying among a group of Member States would be “both timely and beneficial”; “ensure a fairer contribution from the financial sector to the public purse”; “create a more level playing field between the financial sector and other sectors in covering the costs of the crisis”; and “make financial markets more efficient, by steering them away from casino-type trading to more stable activities which support the real economy”. Although 10 Member States are supportive, any other may join at a later stage (under the same conditions as apply to those who participate from the outset).
The details as to scope etc will be set out in the proposal that goes to Council but it appears likely that the tax will include design features, such as an “issuance principle” (so that it could apply to instruments issued in the common FTT area or derived from securities based in that area) – which would ‘catch’ transactions linked to a participating country (even if counterparties and the traded instrument are outside the participating country).
AIMA will track the ECP proposal closely and attend the UK’s HM Treasury update meeting on 16 November 2012.
AIMA published a report (February 2012) on the likely impact of a EU-wide FTT and submitted evidence to the UK’s House Of Lords European Union Committee. That committee concluded, in a report of May 2012, that the Commission had failed to make a case for an EU-wide FTT (it found also that such a FTT was likely to fall disproportionately on a minority of EU Member States, and especially the UK, which could account for approximately 71% of overall revenue raised; the committee was also not able to identify any genuine link between EU policy objectives and a FTT).
European Commission proposal for FTT by ECP (October 2012)
European Commission Consultation on financial sector taxation (February 2011)
House of Lords feasibility report on FTT (March 2012)