So far, 11 European Union (EU) member states are moving rapidly
towards agreement on the introduction of a financial transaction
tax (FTT), which is likely to start in January 2014. Now is the
time for action. By the end of December we should have an idea of
what the FTT will look like and, importantly, who will be the
recipient of the taxes raised.
Although fiscal measures normally require unanimity, a new legal
procedure called Enhanced Cooperation is being used for the first
time to introduce a fiscal measure. This means that a smaller
number of states can vote for taxation measures that will apply in
these states only.
For the financial services (FS) community, this really is the
time to make its voice heard to try to make the eventual shape of
the FTT more sensible. In the Netherlands, for example, Dutch
pension funds have managed to get the government to indicate its
interest in the FTT but subject to an exemption for Dutch pension
On November 13, 2012, the Economic and Financial Affairs Council
(ECOFIN) (EU-27 Finance Ministers) considered developments
regarding the introduction of an FTT in EU member states wishing to
participate in Enhanced Cooperation, and discussed how to proceed.
The EU Commission presented its proposal for a decision to
authorize Enhanced Cooperation on the FTT.
The Commission's proposal, submitted on October 23, 2012,
would allow 11 member states to introduce the FTT via Enhanced
Cooperation (Austria, Belgium, Estonia, France, Germany, Greece,
Italy, Spain, Portugal, Slovakia and Slovenia). In June, the
European Council urged that a decision be made by December.
During the ECOFIN meeting, the Netherlands indicated that it
would also be interested in participating, under certain
conditions, namely that:
Dutch pension funds would be exempt from the FTT;
there would be no excessive concurrence with the existing Dutch
bank levy; and
FTT proceeds would go to the EU member states.
The Commission welcomed the new Dutch position.
Two member states not wishing to join the Enhanced Cooperation
(Malta and the United Kingdom) wanted a more detailed assessment of
its impact on the internal market before supporting the decision
authorizing Enhanced Cooperation. In reply, however, the
Council's Legal Service pointed out that the two-phased
procedural approach now followed by the Commission and the Council
was the only correct one. Under this approach:
first the formal authorization for the start of the Enhanced
Cooperation procedure (ECP) must be fully finalized to create a new
legal situation; and
then the Commission will issue a new legislative proposal on
substance intended for the participating member states, which will
be accompanied by a Commission impact assessment.
The scope and objectives of the new legislative proposal will be
based on the proposal submitted by the Commission in 2011. That
proposal, which involved a harmonized minimum 0.1% tax rate for
transactions in all types of financial instruments except
derivatives (0.01% rate imposed on the notional value), had been
heavily criticized, because it would arguably hurt market liquidity
and drive business outside the EU.
Member states now face the challenge of identifying the least
common denominator, because the 2011 proposal is unlikely to be
acceptable in its current form. One suggestion, proposed by the
German Liberal Democrats, is to introduce a UK-style stamp duty.
Whether this could be enhanced to a full-scope FTT in a second step
remains to be seen.
The authorization decision requires a qualified majority (QMV)
for adoption by the Council, with the consent of the European
Parliament. Adoption of the legislative act defining the scope and
objectives (substance) of Enhanced Cooperation requires unanimous
agreement by the participating member states and will be binding
only on these participating member states.
Over the next week, it will be of utmost importance to the FS
community to ensure that market experience with the UK stamp duty
and the initial experience with the French FTT will be presented
to, and used by, the legislators to shape the new tax sensibly.
Tentative FTT calendar
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