European Union: Proposals For A European Union Financial Transactions Tax

The proposals made by the EU Commission on 28 September 2011 regarding an EU directive on a common system of financial transaction taxation in the 27 Member States of the EU have been debated widely in the three weeks since they were presented. The presentation of the proposed Directive (the "Directive"), together with proposals to amend Directive 2008/7/EC concerning indirect taxes on the raising of capital, represent the latest stage in a series of announcements by EU authorities directed towards ensuring that the European financial sector should "contribute more fairly"1 towards the costs of addressing and rectifying the current European financial crisis. A series of conclusions from the European Council2, communications addressed to the European Parliament3 and EU Commission staff working papers4 and consultations throughout 2010 and 2011 have created a platform upon which the relative merits of various options for taxing the financial sector have been analysed. These developments have taken place in tandem with both Member State initiatives (such as the UK bank levy introduced in Finance Act 20115) and international discussions involving the International Monetary Fund6 and the G-20 group of countries7.

With the depth and nature of the European financial crisis continuing to evolve and the costs of stabilising and recapitalising the European financial sector showing no signs of abating, the Directive comes at a profoundly sensitive political and economic time. This memorandum considers both the mechanics of the proposed financial transaction tax (the "FTT") and looks at some of the challenges which the EU Commission, Member State governments and financial institutions will face in attempting to create a workable tax which achieves the aims of its proponents. The analysis in this memorandum is based on the Directive, and supporting documents, published on 28 September 2011.

Objectives

The objectives of the FTT have been stated by the EU Commission as being:

  • to raise revenue and obtain an adequate contribution from the financial sector to compensate for the costs of the financial crisis, thereby ensuring a "level playing field with other sectors from a tax perspective";
  • to limit undesirable market behaviour and stabilise markets; and
  • to ensure the functioning of the internal market of the EU and prevent internal market fragmentation through disparate unilateral Member State initiatives.8

These objectives are, in turn, devolved from the reasoning behind the FTT that, among other things, the financial sector "should bear its fair share of the costs of the financial crisis"9 and that the financial crisis was attributable to, or exacerbated by systemic risks in the financial sector, not least of which was the proliferation of financial products and counterparty risk.

Scope of FTT

Tax base

The FTT is a tax applied to financial transactions where at least one of the parties is a financial institution and either that party or another party to the financial transaction is established in a Member State of the European Union (a "Member State"). The key terms "financial transaction" and "financial institution" are both defined in the Directive. It is not relevant whether the financial institution which is a party to the transaction is acting as a principal or an agent in that transaction10.

The definition of "financial institution" includes a wide range of entities, including banks, credit institutions, insurance and reinsurance undertakings, pension funds, UCITS collective investment funds and their investment managers, securitisation SPVs and other special purpose vehicles and certain leasing companies.11 The breadth of the definition of financial institution may also encompass Treasury companies within corporate groups, which points towards a possible inconsistency between the financial sector-focused policy objectives underpinning FTT and the precise drafting of the Directive.12 Central counterparties for clearing houses, securities depositories, the European Financial Stability Fund and (with an eye to the future, possibly) any "international financial institution established by two or more Member States which has the purpose to mobilise funding and provide financial assistance to the benefit of its members that are experiencing or threatened by severe financing problems" are not "financial institutions".13

Where a person carries on deposit taking, lending, providing guarantees, finance leasing or participates in financial instruments as a "significant activity in terms of volume or value of financial transactions", such a person would also be treated as a financial institution14.

Financial transactions

The FTT taxes a "financial transaction". This is defined as being:

  • the sale and purchase of a financial instrument before netting or settlement including repos and securities lending agreements;
  • the transfer between group entities of the right to dispose of a financial instrument and any other operation effecting a transfer of risk associated with that instrument; and
  • the "conclusion or modification" of derivatives agreements (the terms "conclusion or modification" are not further defined in the Directive and no further guidance is given in any of the supporting documentation produced by the EU Commission). The entry into a derivative, any change in its terms, any extension or close out of a derivative, whether cash or physically settled would appear to fall within these concepts and therefore fall within the scope of FTT. Certain types of derivatives, such as variance swaps, reflect daily price changes based on the closing price of the underlying product, so such swaps can arguably be said to be "modified" on a daily basis.

Any "subsequent cancellation or rectification" of a financial transaction has no effect on chargeability (except where an error can be proven), with no rebate of previously chargeable tax being available in these circumstances.15

"Financial instruments" are themselves defined as being the instruments falling within Section C of Annex I of Directive 2004/39/EC (the Markets in Financial Instruments Directive). This definition encompasses a wide range of instruments covering shares, securities (including listed bonds), units or shares in collective investment undertakings, options, futures and other derivatives. Derivatives are included irrespective of whether they are physically or cash-settled and regardless of whether the underlying is itself a financial instrument16. Both repos and securities lending agreements are expressly defined as "financial instruments", as are "structured products", the latter being securities or other financial instruments offered by way of securitisation17 or equivalent transactions involving the transfer of risk other than credit risk. The Explanatory Memorandum to the Directive makes it clear that the scope of FTT extends to regulated markets, multi-lateral trading facilities and also over-the-counter trading in financial instruments.

Importantly, a number of transactions are excluded from the scope of FTT. The EU Commission has announced that "all transactions in which private individuals or SMEs were involved would fall outside the scope of the tax"18. Elsewhere reference is made to "ring-fencing of the lending and borrowing activities of private households, enterprises or financial institutions and other day-to-day financial activities".19 The precise scope of this exclusion is currently unclear. It appears that mortgage lending, consumer credit and consumer insurance transactions will fall outside the scope of FTT. However, subsequent trading of these instruments, for example, through securitisations, would fall within the scope of FTT.

Other absences from the list of financial instruments include loans, deposits, spot forex transactions, physical commodities and emissions credits. A number of these are surprising given the otherwise broad definition of "financial instruments".

Primary market transactions including the issuance, allotment and subscription of financial instruments are, however, excluded from the scope of FTT.20 The reason given for the exclusion is "so as not to undermine the raising of capital by governments and companies"21. However, the issue and redemption of shares and units in collective investment undertakings and alternative investment funds fall within the scope of FTT. With derivative hedges entered by such funds being subject to FTT and being unable to claim corporate tax deductions for any FTT liability (assuming such funds are exempt from corporate taxes, as is often the case), the taxation of fund issuances, transfers and surrenders is likely to result in UCITS funds and Alternative Investment funds being severely affected by FTT.

Transactions with Member States central banking institutions and with the EU or EU institutions (such as the European Central Bank) are also excluded from the FTT. Curiously, transactions with non-Member States' central banks (such as the US Federal Reserve Bank of New York) are not excluded.22

Territoriality

For a financial transaction to be within the scope of FTT, two requirements are necessary: (i) at least one party to the transaction must be "established" in the Member States; and (ii) a financial institution "established" in a Member State must be a party to the transaction acting either for its own account or as an agent. A number of deeming provisions widen the ostensible scope of the second limb of the test. A financial institution is deemed to be "established" in a Member State if the financial institution has (amongst other factors) its usual residence, permanent address, registered seat, or a branch in that Member State in respect of transactions carried out by that branch.23

A financial institution will also be deemed to be established in a Member State if it is a party, whether acting as principal or as agent, to a financial transaction with another financial institution established in that Member State, or is a party to a financial transaction with a counterparty established in that Member State which is not a financial institution24. The practical impact of this condition is to widen significantly the residence and location tests of "establishment". Accordingly, a US bank (being a financial institution) entering into a financial transaction with an EU incorporated company (a non-financial institution) would fall within the charge to FTT as regards that financial transaction. This would be the case even if the financial transaction is entered into by the US bank from New York. The US bank would be liable for any FTT due, with the EU corporate counterparty being jointly and severally liable.

One interesting provision in the Directive in this particular regard is that a financial institution will not be treated as being established in a Member State where the person liable to pay FTT is able to show that there is "no link" between the economic substance of the transaction and the territory of any Member State. The term "economic substance" is not defined, and it will be interesting to see how and to what extent this provision is amplified or addressed in guidance.25 Perhaps equally important is the requirement that relief is available only where "no link" exists with the economic substance of the transaction. In circumstances where "economic substance" is evaluated by reference to a blend of factors (some of which may be subjective), the absolute prohibition on any link to that economic substance existing is likely to be a demanding test to satisfy.

As a result of the broad territorial scope of FTT, non-EU financial institutions with no European presence whatsoever could fall within the ambit of FTT simply because their counterparty is itself established in a Member State. A US bank entering into a derivative under market standard documentation from its New York head office with a bank in the UK would therefore be treated as being "established" in the UK for FTT purposes. The US bank would be liable to pay FTT, with the UK bank being jointly liable. It is submitted that the extra-territorial scope of the definition of "establishment" is intentional, and is intended by the EU Commission to act as a deterrent to the migration of financial transactions to non-EU based financial institutions. However, the impact of such a deterrent may be quite limited. The wide territoriality of FTT may prompt non-EU banking groups to incorporate treasury companies outside the EU with which non-EU bank branches or bank group companies can then do business, with the result being avoidance of FTT.26

Rates and collection

FTT will be charged at two rates. While Member States will be able to set their own rate, a minimum rate is proposed to be set at a level which achieves the "harmonization objective"27 of the Directive while minimizing the risk of delocalization. The minimum rate of FTT has been set deliberately low to attempt to avoid a negative impact on financial markets. Accordingly, a minimum rate of 0.1 per cent. is the rate of FTT generally charged on the purchase price or other consideration for a financial transaction. In the event that consideration is lower than market price or is the consideration for intra-group transactions, the taxable amount is to be the market price determined at arm's length at the date of the FTT charge.

A lower minimum rate is to be imposed for derivatives at 0.01 per cent. of the notional amount at the time the derivative is purchased, sold, transferred, concluded or modified. The explanation for this from the EU Commission is that "[t]his approach would allow for a straightforward and easy application of FTT on derivative agreements"28. However, it is worth noting that, unlike the price of physical bond, the notional of a sap does not change hands and whilst relevant, is not the only factor determining the cash flows associated with such swap.

The time at which FTT is required to be paid to a tax authority of a Member State will depend on the nature of the financial transaction. First, where a transaction is carried out electronically, such as through a clearing system or on an exchange, FTT is payable "at the moment when the financial transaction occurs"29. Clarity will be required as to the date, or time, a transaction "occurs". The most plausible explanation for the term is that occurrence takes place when a clearing system accepts a transaction for clearing. Second, where transactions do not occur electronically, the tax is payable within three working days from the time the tax becomes chargeable.30 Provisions are also included in the Directive for the filing of monthly returns setting out information relating to FTT during monthly periods. The Directive includes provisions under which the FTT will be included in the network of EU directives focusing on administrative cooperation and mutual assistance in the field of taxation. The Directive also requires that Member States prevent "avoidance, evasion and abuse" of the FTT regime, such as artificial division (and resultant reduction) of a derivative's notional amount.

FTT is payable by each financial institution which is a party to a financial transaction, regardless of whether that financial institution acts as agent or principal.31 Where a financial institution acts in the name of or for the account of another financial institution in the transaction, only that second financial institution is liable for the FTT. Where a financial institution transacts with a non-financial institution counterparty established in a Member State, the non-financial institution will be jointly and severally liable for the FTT.32 Member States can also provide that other persons may also be made jointly and severally liable for payment of FTT in addition to the persons identified as being liable in the Directive.

Owing to the priority in the Directive of determining the location of the establishment of a financial institution33, FTT payable in respect of a financial transaction entered into by a bank branch in the EU will be paid to the Member State in which the bank's head office is authorised or incorporated. In the event that the branch funds the head office's liability to FTT and claims a corporate tax deduction for that payment, the overall result might be both a reduction of corporation tax revenues for the branch's Member State coupled with the FTT being collected by the tax authority of the Member State in which the bank head office is established. Such a scenario could cause a material adverse impact on revenues of some Member States such as the UK.

In circumstances where multiple parties are participating in a transaction, multiple FTT liabilities may arise. For example, where a financial institution acts as agent for a non-financial institution, both could be liable to FTT. Furthermore, transactions are individually subject to FTT. Where a single financial deal includes multiple, smaller, component transactions, each component transaction may be charged with FTT. This cascading effect is imposed even where the multiple transactions are entered into between group members and appears to be intentional.

Another example of potential situation where multiple FTT liabilities may have to be considered is a clearing set-up, where one single derivative transaction will result through: (1) one buy-side firm (2) being authorised by its clearing broker (3) to agree the terms of a give up trade with an executing broker (to be "given up" for clearing) and the other leg of the transaction involves a (4) second buy-side firm, with its own (5) clearing broker and (6) executing broker, where a number of "original", "give-up" and "offsetting" transactions will be deemed to exist for such chain of instruction to produce one cleared transaction.

Implementation

The proposal is for the FTT to be enabled by legislation in each of the Member States by the end of 2013, with the tax taking effect from 1 January 2014.

The introduction of FTT is being proposed under Article 113 of the EU Treaty. As such, the Directive would need to be unanimously approved by each of the Member States. In the event of any Member State vetoing the Directive, as a number of commentators have contemplated that the UK Government may do, the proposals can progress under an enhanced co-operation procedure under which one or more Member States may be authorized to exercise EU nonexclusive competencies through various EU institutions with a view to protecting EU interests and propelling EU integration. It appears that any attempt by Member States to unilaterally introduce the proposals for an FFT are unlikely to succeed for a number of reasons. Legally, such a unilateral adoption would be questionable owing to the provision in Article 401 of the EU VAT Directive34 which prohibits Member States from maintaining or introducing "turnover taxes". The question of whether the FTT would constitute a "turnover tax" in the context of Article 401 depends on a number of factors, not least whether the FTT would have the effect of jeopardising the function of the common system of value added tax by being levied on the movement of goods and services and on commercial transactions in a way comparable to VAT.35 The question is not free from all doubt, and Member States would be wary of any unilateral introduction of an FTT in a manner which might precipitate subsequent legal challenges. Moreover, the EU Commission has identified that unilateral introduction by Member States is likely to be ineffective, citing the example of Sweden's unsuccessful bond transaction tax in 1984 to 1991 period. More generally, any unilateral introduction by a Member State of any tax which may be construed as a "turnover tax" (such as the FTT) would raise concerns within the EU as regards whether such an introduction may be contrary to the fundamental freedoms relating to free movement of capital.

The introduction of the FTT would be matched by the withdrawal of other taxes on financial transactions across the EU. Although VAT and insurance premium tax would not be affected, existing taxes such as stamp duties and stamp taxation on securities would almost certainly need to be repealed. This would be welcomed by individual investors and certain funds which currently pay UK stamp duties or stamp taxation on the purchase of UK shares at a rate of 0.5 per cent. of the purchase consideration. Purchasers of UK shares and any securities which are subject to UK stamp taxes which are established outside the EU but which transact with non-EU persons outside the scope of FTT would be able to avoid both FTT and UK stamp taxation. However, these residual benefits have to be set against the prospect of some Member States losing significant stamp taxation revenue36.

Problems, Uncertainties and Policy Objectives

Revenue Raising?

The provenance of the FTT is readily apparent as being a tax arising from the financial crisis which is aimed at both disincentivising transactions which are perceived to pose a risk to market stability and also eliciting a degree of reparation from the European financial sector. The revenue estimates for the FTT are significant, being predicted as being in the region of €57 billion per year shared between the Member States37. The EU Commission Impact Assessment accepts that "the revenue estimates for the variants of FTT heavily depend on the assumption on volume decrease and on the elasticity of remaining trade volumes to the tax".38 Unusually for a tax, the effectiveness of the tax in raising revenue is also accepted as resulting in a "small, but non-trivial" drag on the GDP of the Member States. This is estimated as constituting a reduction in economic output of 1.76 per cent.39, which is seen as a necessary corollary of "correcting undesirable market behaviour and thereby stabilizing financial markets"40.

However, at a time when growth in many countries in the Eurozone is exceptionally low, it is not unduly pessimistic to suggest that introducing the FTT, with the macroeconomic impacts suggested, may push a number of EU economies towards recession. Moreover, estimates of revenue raised by the FTT appear to be predicated on an absence of widespread relocation of financial transactions to non-EU jurisdictions (a point considered further below) and are highly dependent on the plausibility of the EU Commission's underlying assumptions as regards avoidance and relocation. The negative impact of the FTT, through an increase in the cost of capital as financial institutions attempt to pass FTT costs to clients, is unlikely to be welcome at a time when the European financial system is focused on liquidity provision, sustainable economic growth and bank recapitalization.

An argument may also be advanced that, to the extent that derivatives are often used for hedging purposes and therefore to mitigate risk, the FTT "penalises" risk reduction instruments that aim to hedge market risk such as FX risk, interest rate risk or credit risk. By disincentivising such hedging instruments, there is a danger that the imposition of the FTT engenders, and does not reduce, systemic market risks.

A "Pragmatic First Step"?

Allied to discussion regarding the macro-economic impact of the FTT is a deep concern regarding the delocalization effects of the introduction of the tax. As noted by the EU Commission itself "[t]here are strong economic reasons for a high degree of harmonization and coordination in order to avoid substitution and loopholes".41 Furthermore, the Impact Assessment accepts that modern financial transactions are extremely mobile, citing the Swedish financial transactions tax enacted in various forms between 1984 and 1991 as an example of the danger of unilateral introduction.42 Curiously, however, the proposal for an FTT does not take account of the possible relocation of financial transactions away from the EU. While it is clear that the EU Commission views the FTT as a key component in a global-level financial transaction tax and notes how the proposal for the FTT "demonstrates how an effective FTT can be designed and implemented" and "paves the way towards a coordinated approach with the most relevant international partners"43, high hopes and hard realities may prove difficult to reconcile. It is telling that the focus of the EU Commission's proposals appear to be the G-20 group of countries, at least in the first instance.44 However, given the global integrated market place, it can be strongly argued that unless all key financial jurisdictions (including tax shelters, tax havens and low tax jurisdictions such as Singapore) are included in an FTT, the risk of delocalization may be insurmountable. Although the Impact Assessment accepts that introduction of FTT would come with the risk of "relocation or disappearance" of some transactions (such as high-frequency derivative transactions), the policy objectives behind FTT are unlikely to be achieved if the result of FTT introduction is a wider, systemic dislocation in European financial trading and banking markets.

Indeed, at this point it is instructive to re-examine the desirability of a global FTT first expounded by Barry Eichengreen, James Tobin and Charles Wyplosz in their paper "Two cases for sand in the wheels of international finance" (the "Tobin Paper") 45. In the Tobin Paper, the authors identified two situations in which an FTT might be beneficial. The first FTT was intended to be an additional lever in the monetary machine of national governments. In the pre-1971 Bretton- Woods world of exchange rate pegs, exchange controls had been used as a defence by monetary authorities in defending their pegs from speculative "attack". As countries abandoned their pegs, exchange controls were no longer needed and currencies floated freely against one another. The proposition of Tobin and his co-authors was that relinquishing control of exchange rates also meant relinquishing control over domestic interest rates and that domestic interest rates would therefore be vulnerable to short term volatility in exchange rates. Since exchange controls are not compatible with a free-floating currency, and short term exchange rate volatility was perceived to be undesirable, an FTT was thought to be a way of reducing damaging short term exchange rate volatility.

At first glance, it appears difficult to reconcile the underlying intention of the FTT as proposed by the EU Commission with the original aims of Tobin et al. Tobin and his co-authors proposed a global FTT that was aimed solely at foreign exchange transactions. The EU FTT would be neither global nor would it be targeted at foreign exchange transactions (which are outside the scope of the FTT).

However, the second case for "sand in the wheels of international finance" which the Tobin Paper identified, concerned Stage II of the Maastricht Process leading up to European monetary union. A tax analogous to what has now been proposed as the FTT was presented as a means by which the risk of a breach of the EMU convergence criteria, resulting from a speculative "attack" on a currency, could be reduced. Rather than taking effect directly as a tax on forex transactions (which could not be enforced outside the EU), their version of the FTT was to be applied to loans to non-residents by individual Member States. This would have had the effect of indirectly increasing the cost of trading the ERM currencies and, it was thought, deterring short term "speculators". As the authors recognised, however, this would have required a curtailment of the EU Treaty freedoms as it would clearly have discriminated between domestic borrowers and borrowers in other Members States.

There are two lessons that might be drawn, however, from the second case given in the Tobin Paper in attempting to unpick the motives of EU Commission policymakers in 2011. Firstly, the FTT can be used as a tool for protecting an exchange rate peg. This puts the focus clearly on the Eurozone countries in the current context as opposed to the wider EU. Secondly, since the former ERM countries no longer have currencies that can be traded, an FTT on forex would be inapplicable46 but an FTT on other forms of financial instrument used to exploit arbitrage between Eurozone Member States might be of great interest. One of the recurring themes of the European financial crisis has been the volatility of interest spreads of the sovereign debt of peripheral Eurozone countries over Germany's sovereign debt. It might therefore be expected that short-term "round-trip" transactions relating to the sovereign debt of Eurozone countries47 are the real focus of the EU Commission and that that, correspondingly, the FTT should be of far more limited relevance to the UK and other non-Eurozone countries. As the UK's financial sector will be acutely aware, however, this reasoning has not been reflected in the drafting of the Directive, which extends to all Member States and not merely the Eurozone countries. Correcting this mis-alignment may well be a priority for lobbyists on behalf of the UK financial sector and, possibly, the UK Government.

This sheds some light on the much-publicised tension between the UK and Eurozone in respect of the Directive. The main economic benefit of an FTT identified by Tobin et al is likely to accrue to the Eurozone members. If the scope is widened, the Tobin Paper indicates that there might be some economic benefit in doing this on a global scale but not otherwise (as markets will move elsewhere). The UK could find itself suffering the worst of both worlds, losing a proportion of its international markets in financial instruments as a result of the FTT and receiving no appreciable increase in control over its own monetary policy (when compared to the Eurozone members).

Avoidance and Counter-Avoidance

Just as there remain a number of uncertainties over the scope of financial instruments that are subject to FTT, it is also unclear at the current time how attempts to restructure financial instruments to fall outside FTT may be counteracted. The Directive provides expressly for the Member States to adopt measures to "prevent tax evasion, avoidance and abuse"48, and it is submitted that much focus will be placed upon the apparent exemption for loan finance, insurance contracts and mortgage lending.

Deconstructing a floating rate loan with a derivative hedge into a fixed rate loan or sequence of fixed rate loans would appear to avoid FTT to the extent that loans are not themselves "financial instruments". Other more sophisticated financial engineering may be possible. Notional amounts of derivatives could be reduced, with a corresponding increase in the quantum of payments under that derivative. Derivatives could also be restructured as cross options, or contracts of insurance, indemnity or guarantee. Other instruments may have their market value reduced through the addition of commercial conditions or restrictions. How planning devices of this nature, long seen in direct tax structures and generally combated through anti-avoidance measures and jurisprudence, would be addressed is uncertain.

Structuring transactions around the boundaries of a tax charge is nothing new. However, the importance in the FTT regime of transactions and instruments may be viewed as giving the FTT an inherent vulnerability which might be seen as being out of step with some other forms of taxation (such as service and supply-based taxes)49. Combating avoidance in this area is unlikely to be straightforward, particularly if the abuse of rights doctrine formulated in the line of cases leading to Halifax50 is to be deployed. In transactions where lending relationships or insurance contracts51 are entered into by participants instead of derivatives, it may well be difficult to identify abuse in a Halifax context owing to the likelihood that the financial activity entered into has some explanation other than the mere attainment of tax advantages.

Territorial Restructuring

In addition to market participants scrutinising the form of their transactions with a view to considering whether careful structuring may avoid the imposition of FTT, the territoriality of FTT may also propel market participants towards restructuring their activities on an entity by entity basis. For a non-EU financial institution, FTT could be mitigated through derivative contracts being effected outside the EU with non-EU counterparties. For EU financial institutions, treasury subsidiaries and SPVs could be established in non-EU territories to prevent the contracting financial institution being subject to tax. Additional analysis will be needed before such planning could be implemented, such as considering carefully the double tax treaty network of the jurisdiction in which the treasury subsidiary or SPV could be located. It is also possible that questions of beneficial ownership of income may be resurrected if such planning becomes widespread, perhaps following the line of arguments advanced in cases such as Indofood52 and Prévost Car53.

Reducing "overly risky transactions and activities"

One of the anticipated benefits of the FTT is that the tax will "set incentives to reduce overly risky transactions and activities".54 The EU Commission has anticipated that the FTT could "curb speculation, noise trading and technical trade, and ... decrease markets' volatility".55 While it is possible that automated high-frequency trading which is undertaken by EU entities and from EU permanent establishments may be driven out of the EU if the FTT in its current form was to be introduced, any reduction in systemic market and financial risk may be outweighed by other negative, behavioural consequences resulting from FTT.

For example, the definition of "financial transaction" would result in transfers of collateral falling within the scope of FTT, and being charged separately on each transfer at the higher rate of 0.1 per cent. applicable to securities. Consequently, and coupled with the exemption of lending transactions from the scope of FTT, the imposition of FTT on posting and transferring collateral may lead to fewer collateralised lending transactions in the form of repos and stock loans and an increase in uncollateralised lending. Such a development is unlikely to add materially to fiscal stability or creditor protection. Derivatives are marked-to-market on a daily basis and as a result, collateral in respect of such daily exposure may get transferred daily during the life of the swap: it is to be hoped that such daily collateral transfers will be excluded from the scope of the FTT.

The possible incentives for financial institutions to undertake financial transactions outside the EU, in consequence of the territorial scope of FTT, also appear likely to encourage financing away from regulated, highly capitalised European financial institutions and markets towards less regulated, more thinly capitalised offshore financial centres to which derivative broker/dealers and other market participants may have migrated. Combating such migration will be difficult; it would be unrealistic to anticipate that the main offshore financial centres would willingly impose an FTT, at least not in the short term.56 Furthermore, it is difficult to discern a regulatory and policy approach within the FTT which is contiguous with other EU regulatory initiatives. For example, whereas regulatory initiatives such as the EU Solvency II Directive include extensive measures to determine whether non-EU insurer solvency regimes demonstrate sufficient equivalence to European regulatory requirements, the FTT may result in financial activities being transferred to less-intensively regulated offshore jurisdictions where such equivalence may not yet have been established.

A risk therefore exists that the imposition of the FTT might lead to a greater number of uncollateralised and thinly regulated transactions. Such a result is exactly the opposite of the policy objectives articulated by the EU Commission.

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To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions