The Brussels draft plan sets the stage for France, Germany and nine other euro area countries to agree the exact terms of Europe’s first so-called “Tobin tax” on equity, bond and derivative transactions.
Brussels’ drive for a Europe-wide tax opened an irreconcilable rift between EU members, forcing a eurozone vanguard to forge a smaller transaction tax bloc covering two-thirds of EU economic output but excluding the City of London. The draft, prepared by the EU tax commissioner Algirdas Semeta, casts a wider net than expected by adding anti-avoidance measures to the original plan for an EU-wide levy, so that financial business does not decamp to safe havens.
Under the plan, a levy of 0.1 per cent on stock and bond trades and 0.01 on derivatives is imposed on any transaction involving one financial institution with its headquarters in the tax area, or trading on behalf of a client based in the tax area. The Commission proposes the tax should also apply to transactions based on where the financial product was issued, even if the parties trading it are in Asia, the US or Britain. This would cover shares, depository receipts, bonds, money market instruments, structured products and exchange-traded derivatives “with a clear connection to a participating member state”.
The €30 billion - €35 billion generated is bigger than expected. The broad scope of the draft tax will come as a surprise to some Member States and is still likely to trigger a lively debate, even within the Commission, according to senior European officials.
The proposal will absolve eurozone states or central banks from paying the tax when intervening in secondary sovereign bond markets, even though investors trading bonds would be liable. Spot currency transactions are also exempt. To win political consensus for the deal, further carve-outs are likely. Those countries that have expressed interest in a transaction tax include Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia.
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