On February 14tth 2013 the EU Commission adopted a proposal (COM (2013) 71 final) for a directive implementing enhanced cooperation in the area of financial transaction tax ("FTT"). Even though only eleven of the EU's 27 Member States support the FTT, a majority of the EU's 27 Member States have given their permission for the legislation to proceed through an enhanced cooperation process.
The aim of the proposal is for financial institutions to make a fairer contribution following the financial crisis. A secondary aim is to try and avoid fragmentation i.e. each Member State imposing its own FTT. A third objective is that the FTT will support regulatory measures in encouraging the financial sector to engage in more responsible activities, geared towards the real economy.
The proposal is that a common FTT be put in place in relation to all financial transactions on condition that at least one party to the transaction is established in a participating Member State and that a financial institution established in a participating Member State is a party to a transaction acting either for its own account or for the account of another person, or is acting in the name of a party to the transaction.
The scope of the proposed directive is very wide. The definition of "Financial Transaction" includes the purchase and sale of financial instruments, transfer between entities of a group of a right to dispose of a financial instrument, derivative contracts, exchanges, repos, reverse repos, securities lending and borrowing agreements.
The concept of "established in a participating Member State" is drafted similarly broadly to include not only those financial institutions that have been authorised by such Member State but also those that have a branch within the Member State and those that have no connection with the Member State other than being a party to a financial transaction relating to financial instruments issued within the territory of a participating Member State.
The definition of "financial institution" includes banks, investment firms, regulated markets, pension funds, UCITS and AIFs.
The tax becomes chargeable at the time when the financial transaction occurs. It will be payable to the tax authorities of the participating Member State in which the financial institution is deemed to be established.
The rates will not be lower than:
- 0.1% in respect of financial transactions other than those relating to derivative agreements.
- 0.01% in relation to derivative agreements.
The proposal will now be discussed by all 27 EU Member States. However, only the participating Member States can vote on it. The European Parliament will also be consulted. At the moment the proposed transposition date is September 30th 2013 and effectiveness date is January 1st 2014.
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