EFAMA's comments on the Commission's proposal for a Council Directive on a common system of financial transaction tax

01 December 2011

Given the arguably misleading statements in the proposal and the accompanying press releases, EFAMA is particularly concerned that end consumers and their advocates have not appreciated the very significant cost impact which the FTT will have on their long-term savings.

By way of a general introductory remark, EFAMA understands that the Commission is looking for ways in which the financial sector may contribute to public funds in recognition of the impact of the financial crisis and the bail out of the banks and insurance companies, and to create appropriate disincentives for transactions that do not enhance the efficiency of financial markets. EFAMA is, however, of the view that the Proposal would be highly unlikely to achieve the Commission’s objectives, some of which are based on faulty premises, and that the collateral damage which the proposal would cause means that it cannot be justified. In particular, EFAMA draws the  attention to the fact that the proposal:

• would give rise to a significant cost on long‐term savings, including pensions and investment funds, which will, in reality, be borne by the end consumers, not the financial institutions;
• as currently drafted, would give rise to economic multiple taxation where investment is made via pension funds or investment funds;
• would cause distortion of competition, both as a result of its unequal treatment of competing financial products within the EU and also through the competitive advantage it would give to investment funds located outside the geographical scope of FTT; and
• could ultimately lead to tax avoidance, as sophisticated investors may try to relocate to circumvent the FTT through offshore arrangements.

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