26 November 2012

ECB Opinion on amendments to the Law on the financial transaction tax [Hungary]

The draft law amends the FTT Law in the following manner:

(i) the draft law excludes from the base of the financial transaction tax (FTT) the issuance of Magyar Nemzeti Bank (MNB) bills with a maturity of up to two weeks on the primary market and the placement of overnight deposits with the MNB;

(ii) from 1 January 2013, in addition to payment transactions already covered by the FTT Law, other transactions will also become subject to the FTT; inter alia, loan repayments, fees and commissions charged by financial services providers, and credit card payments. At the same time, the draft law raises the applicable FTT rate from 0.1 to 0.2 per cent of the amount of the transaction, leaving the HUF 6,000 per transaction cap in place;

(iii) the provisions of the draft law concerning transactions with securities will come into force on the day following the adoption of a proposal of the European Commission for a Council Directive on a common system of financial transaction tax, amending Directive 2008/7/EC6. According to these provisions, the FTT will apply to all transactions on securities, including derivatives transactions, whereby the FTT rate will be 0.01 per cent on derivatives transactions and 0.1 per cent on other securities transactions without an applicable cap per transaction. Transactions with any kind of security issued by the MNB as an instrument of monetary policy will be exempted from the FTT, including on secondary markets. Furthermore, the provisions of the FTT are not applicable to the MNB. However, even though the MNB is exempted from paying the FTT, account managers of counterparties to securities transactions with the MNB (hereinafter ‘counterparties’) will be liable to pay the FTT, if these transactions involve a change in the ownership of securities other than securities issued by the MNB.

The European Central Bank states that Hungarian authorities failed to follow the required procedure for consultations.

As for the appraisal of the amendments to the Law on the transaction tax, “[t]he ECB welcomes that the Hungarian authorities have taken into account Opinion CON/2012/59, by excluding from the base for taxation the issuance of MNB bills with a maturity of up to two weeks on the primary market and the placement of overnight deposits with the MNB.” At the same time, however, "the ECB considers that the imposition of the FTT on counterparties to the MNB’s monetary policy transactions has a similarly negative impact on the central bank’s capacity to set independently the conditions of such transactions in line with the intended monetary policy objectives, as if the central bank itself was liable to pay the FTT. This negative impact resulting from the imposition of an FTT on securities transactions with the MNB is not in line with the MNB’s functional independence."

“The ECB therefore recommends that the Hungarian government further exempts from the payment of the FTT all counterparties to transactions with the MNB, initiated by the MNB to achieve its monetary policy objectives; i.e. counterparties to transactions with securities that have not been issued by the MNB.”

Opinion

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