The European Commission (EC) has set out the details of a proposed financial transaction tax (FTT) that 11 of its 27 countries are aiming to introduce.
The proposal published Thursday would tax all transactions with an established link to the participating countries, at rates of 0.1% for shares and bonds, and 0.01% for derivatives. It is expected to raise revenues of €30 billion to €35 billion euros a year.
There are three core objectives to the FTT, the commission said. It aims to to ensure that the financial sector makes a fair contribution to public revenues; to push the sector away from speculation and towards activities that benefit the real economy, such as capital allocation; and, to strengthen the single market in Europe by reducing the number of divergent national approaches to financial transaction taxation.
The commission says that the FTT will have low rates, a wide base, and measures to prevent the relocation of the financial sector. The tax will apply if any party to a transaction is established in a participating state, regardless of where the transaction takes place. This is the case both if a financial institution engaged in the transaction is, itself, established in the FTT-zone, or if it is acting on behalf of a party established in that jurisdiction.
As a further safeguard against avoidance, today’s proposal also adds the “issuance principle”, which means that financial instruments issued in the 11 states will be taxed when traded, even if those trading them are not established within the FTT-zone. Furthermore, explicit anti-abuse provisions are now included, the EC says. The tax does not apply to day-to-day financial activities, such as loans, payments, insurance, and deposits. Nor does it apply to traditional investment banking activities, such as raising capital, or to financial transactions carried out as part restructurings. It focuses instead on trading.
“With today’s proposal, everything is in place to enable a common Financial Transaction Tax to be become a reality in the EU,” said Algirdas Šemeta, commissioner responsible for taxation. “On the table is an unquestionably fair and technically sound tax, which will strengthen our single market and temper irresponsible trading.”
The proposed directive will now be discussed by participating countries, with a view to its implementation under enhanced co-operation. All 27 European states may participate in the discussions on this proposal. However, only the participating states will have a vote, and they must agree unanimously before it can be implemented. The participating countries are Germany, France, Austria, Belgium, Estonia, Greece, Italy, Portugal, Slovakia, Slovenia and Spain.