14 March 2013

EFAMA: European investors and savers face a very great danger if the FTT proposed by the European Commission is introduced

According to EFAMA, the "new" proposal for a Council Directive implementing an FTT in just 11 EU Member States (FTT-zone) will lead to significant costs on savings and reduction in future pension levels of EU citizens. EU savers in UCITS will pay €13 billion of FTT annually.

This comes at a time when governments need to do more to encourage long-term savings by citizens and reduce reliance on the State for retirement provision.  The FTT proposal goes in the opposite direction – it punishes savers. 

The implementation of the FTT in a limited number of EU Member States will cause distortions to the Single Market, creating incentives to relocate asset management activities outside the FTT-zone (causing job losses in the financial sector and therefore negative consequences for the economies of the EU Member States in the FTT-zone). 

The FTT will have a highly detrimental impact on a wide range of activities (in particular in the area of money market funds, repos, securities lending). This will reduce liquidity in the financial market and increase the cost of capital for European companies. 

EFAMA requests that the European Commission and/or the Member States forming part of the FTT-zone re-examine this new proposal.

If applied at the start of 2011, EFAMA has estimated that the annual total cost of the FTT would have reached €13 billion (of which €7.3 billion attributed to the FTT-zone and €5.7 billion attributed to countries outside the FTT-zone). Investors would have paid €4 billion on the redemptions of UCITS shares/units, whereas €9 billion would have been levied on the sales and purchases of securities by UCITS fund managers.  The actual effect of the tax is likely to be even more severe because the tax actually applies various times to each transaction (the so-called “cascading effect” that could give rise to multiple taxation of up to 10 times).

Peter de Proft, Director General of EFAMA, comments: “EFAMA is extremely concerned about the detrimental impact of the new FTT on investors in funds including retail investors and savers participating in pension plans and the European economy, especially those of Member States within the FTT-zone. EFAMA strongly opposes an FTT which will result in fund investors paying the tax (at least) twice, and which will drastically reduce the attractiveness of saving through funds and pension plans. This result would be wholly unjustified in the light of the important social role investment funds play, and the global reputation that UCITS has acquired as a model of excellence in the long-term savings market. EFAMA is also concerned about the distortions to the Single Market damaging the competitiveness of the resident financial institutions leading to unjustified delocalisation out of the FTT zone.”

EFAMA-analysis

© EFAMA - European Fund and Asset Management Association