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The policy objectives behind the tax are to generate additional tax revenue, to ensure the financial sector contributes to recouping the cost of the crisis, and to improve the functioning of financial markets.
Commenting on today’s announcement, Julie Patterson, Director at the IMA said: “We welcome clarification on the objectives for such a tax, as this will help inform the debate.
“We agree with the Commission’s statements that if such a tax is introduced it is important to avoid distortions and to create incentives for the financial sector to make long-term investments. However, we are very concerned that the specific proposals will not achieve this.
“Pension funds could be hit twice by this tax: when the fund manager arranges a transaction on behalf of the fund and when the fund acquires or sells that asset. UCITS investors could be hit three times, as they may also be taxed when they buy units in the fund. As proposed, this would be a tax on savers, not banks.
“Also, the tax will create distortions in the retail marketplace. Insurance-based investment products will not be caught as they are not strictly ‘financial instruments’.
“In the UK, the specific and additional stamp duty charged on funds has been a major factor in funds being domiciled outside the UK. Any tax on financial transactions is highly likely to create distortions between Europe and other key financial centres, which can only result in a loss of business for the EU. We urge the Commission to work closely with all sectors of the industry and investor bodies as these proposals are developed.”