As reported by the Financial Times (subscription), ten eurozone countries on Tuesday committed to introducing a limited financial transaction tax by 2016, prompting an outcry from other E U finance ministers over the vague terms of a political deal negotiated "largely in secret".
In a broad-brush declaration significantly scaling back the original proposals for a expansive so-called "Robin Hood" tax, the countries promised to implement a joint levy that would "first focus on the taxation of shares and some derivatives". The FTT block – including France, Germany, Italy and Spain – were unable to agree more specific details on how the tax wo uld be applied, highlighting deep divisions still not overcome after more than a year of talks. A crucial issue is whether the tax should be based on where an instrument is issued, like stamp duty, or more broadly through the country of origin of those trading the instrument.
At stake is not only the potential spillover effects o f the tax – which Britain and others worry could become extraterritorial in its reach – but the safeguards around "enhanced co-operation", the relatively untested process allowing a vanguard of countries to press ahead with reforms when full EU agreement is impossible.
The Joint Statement by ministers of Member States participating in enhanced cooperation in the area of financial transaction tax set out an agreement on the following key elements:
"The work on the introduction of a harmonised financial transaction tax is to be based on a progressive implementation of the tax. The progressive implementation will first focus on the taxation of shares and some derivatives. Our approach is essential to ensure that each step towards full implementation of the financial transaction tax is designed in a manner that takes due consideration of the economic impact.
Within that context, the first step should be implemented at the latest on 1 January 2016. If individual Member States would like to impose taxation for other products that are not included from the beginning of a progressive implementation, in order to maintain existing taxes, they would be allowed to do so."
Commissioner responsible for Taxation and Customs Union, Algirdas Šemeta commented at the ECOFIN press conference:
"The participating Member States have reiterated their commitment to the FTT and laid down their roadmap for its implementation - this is a welcome signal.
It is true that the plan and pace are less ambitious than the Commission had proposed. But, every step forward on the Financial Transaction Tax is of significance. In the chaos of the counter-lobby claims, it is easy to lose sight of what is being pioneered here. The EU FTT will be the first regional financial transaction tax in the world, will strengthen the Single Market by avoiding a patchwork of national taxes and will ensure that the financial sector makes a fairer contribution to public finances. And it will complement EU regulatory measures for financial stability."
As reported by the WSJ, Germany's Finance Minister Wolfgang Schäuble said that the EU tax should start with derivatives: "The options, interests and situation of the various participants are so divergent that in a first step we can only have a limited taxation of shares and some derivatives." Mr. Schäuble said Monday that he wanted to reach a deal on the first steps of the tax by the end of the year.
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Before the meeting on Tuesday, Michel Sapin, France's Finance Minister had said that the proposal could even be adopted within ten days, just before European Parliament elections at the end of May, reported European Voice (subscription).
As reported by MNI, George Osborne, Britain's Finance Minister, commented: "We will not hesitate to challenge an FTT that has extraterritorial impact." He said the agreement handed to non-participating Member States where still being kept in the dark as to which derivatives would be effected under FTT and called out the European Commission for not producing a proper impact assessment on the extraterritorial effects of such a tax. "Perhaps we could hear more from our colleagues on what is being proposed," he said. "We are entitled to a detailed explanation to what was agreed to."
TheEP's S&D group welcomed progress on the financial transaction tax. S&D Group leader Hannes Swoboda said: "The Socialists and the Democrats note EU finance ministers' commitment to reach a final decision on the financial transaction tax by the end of this year. Despite several delays and legal and technical obstructions the financial transaction tax (FTT) is still alive. We are almost there. We regret, however, that no clear decision was taken before the European elections. We hope that the final design of the FTT will be ambitious and strong enough to be a useful tool in the fight against speculation on the financial markets. The Socialists and Democrats will continue the fight in the newly elected European Parliament."
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The Greens/EFA economic and finance spokesperson Philippe Lamberts, however warned: "By announcing the gradual introduction of a financial transaction tax, starting 1 January 2016 at the latest, the Member States participating in the enhanced cooperation procedure want us to believe that they today took a decisive step towards financial regulation and social justice. This is not the case. They have instead definitively buried the ambitious proposal that was prepared by the European Commission on 14 February 2013. Although the participating Member States are presenting this initiative as a first step that would later lead to an extension of the FTT’s scope, they’ve been very careful to avoid making any actual commitment on this."
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Reuters reports that a tax on stock, bond and derivatives transactions in fewer than half of European Union member states would "not be good" for the bloc's securities market, so Steven Maijoor, chairman of the European Securities and Markets Authority (ESMA). "As a European regulator, obviously I prefer to do something either with all 28 states or nothing."
"We also know that some forms of transaction tax can be devastating to financial markets like we have seen in Sweden. I would say this all depends on form, but clearly if you do something we would prefer to do it with the 28", Maijoor said.
The EBF reiterated its strong opposition to plans to adop t a financial transaction tax and called on governments and lawmakers to recognise that such a tax would damage the European economy, even if its scope would be limited from earlier proposals.
"If you want to foster economic growth you need to provide for a very clear framework", said Guido Ravoet, Chief Executive of the EBF. "This tax would create uncertainty for investors and would increase the costs for businesses, regardless of it being an EU-wide FTT or an FTT limited to a few member states. It would be a tax on growth."
An EU financial transaction tax would be counterproductive for the entire European economy because it would discourage investment in securities and thereby would impair access to finance for enterprises. Even a limited FTT would impede the proper functioning of the Internal Market. Banks also believe it is necessary to consider the impact on trading volumes and the reduction on liquidity in financial markets.
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The Chief Executive of PensionsEurope, Matti Leppälä, commented: "PensionsEurope is deeply concerned about the rationale behind the FTT proposal. If the proposal will be applied in its current form, pension funds will be badly affected by this tax. The consequent increase of costs will ultimately be borne by the pension beneficiaries in terms of higher contributions or reduced benefits. There is no cause to ask European pension beneficiaries to pay for the crisis. They did not cause it, but rather they have suffered (a lot) from it.
Pension funds are currently not exempted from the scope of the FTT proposal. We believe that this is extremely unfair since they will be negatively affected even in the case of finally being granted an exemption. Indeed, the transactions made by pension funds in the financial markets would be directly taxed by the FTT. In addition, we expect that the other sell-side and intermediate financial institutions taxed by the FTT will eventually pass their share of the tax to their customers such as pension funds.
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Simon Lewis, Chief Executive, AFME, issued the following statement on a Financial Transaction Tax: "The intention of the participating Member States to introduce an FTT by 2016 is disappointing. Although the evidence continues to show that such a tax will have serious harmful economic effects for end-users of financial markets throughout Europe, the participating Member States are working towards imposing a tax on transactions in equities and certain types of derivatives. This would have a negative impact on growth and jobs, while creating uncertainty for investors by leaving the door open for further taxation through the step-by-step approach that is now envisaged."
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