France did not wait long before initiating the introduction of a Financial Transaction Tax (“FTT”) at the European level after its implementation in France on February 29, 2012.
The FTT at a global scale was discussed at the G20 meeting in 2009 where the IMF was requested to draft some proposals for a fair and substantial contribution of the financial sector to the budget deficit and the cost for the repair of the bank system. Even if the IMF pushed forward a FAT (Financial activities tax) and a bank levy (introduced since in France, Germany and the United Kingdom and shortly in the Netherlands) as more suitable, the European Union saw in a FTT a appropriate tool which may also feed its own budget.
A draft directive was issued in September 2011 (“EU Proposal”)(1). The EU adopted a triple A approach: “All markets! All instruments! All actors!” with a 0,1% tax on acquisition and sale of all securities (ie stock, bonds, derivatives, structured products, units in UCITS etc.) to the extent that a EU party (through a EU financial institution defined very broadly) is involved. For derivatives, the rate may not be higher than 0,01%. The only thing is that without unanimity the tax may not come to light in 2014 (as planned) unless a restricted group of Member States (at least 9) decide to move forward and to implement it in their jurisdiction (the same procedure was used for the introduction of the Euro by the 17 Member States referred now as the Eurozone).
France decided to take the lead and introduced the FTT with a reduced scope. The tax (at 0,1%) is due on acquisition of French stocks (or securities giving rise to voting or equity right and equivalent instrument governed by foreign law) issued by companies whose market capitalization is higher than EUR 1 billion. A symbolic tax of 0,01% on cancelled or modified orders by high Frequency operators established in France above a two third threshold since most HFT do not carry out their activities from France. Short selling on EU sovereign risk is also taxed at 0,01% on the conclusion of naked credit default swaps on EU sovereign risk to the extent that the purchaser is also established in France. This tax is also theoretical since short selling on EU sovereign risk will be banned in the EU on November 1rst, 2012.
The introduction of the French FTT was also presented as a push on the other Member States to move forward on the introduction of a EU FTT. Apparently the move might prove successful. A group a 9 countries approached the EU Commission on February 9, 2012 for speeding up the adoption process.
Discussions are also currently held. Apparently a FTT close to the UK stamp duty on UK (local) shares or shares having a nexus with the UK (member state) might have been agreed by the UK unless as Germany suggested, derivatives became taxable.
The French National Assembly published on March 20, 2012 a motion empowering the French government for the proposal of a draft EU resolution for the introduction of a EU FTT on a reduced scale, between “pioneer Member States”(2).
The EU FTT as proposed would correspond to the one as defined in the EU proposal with some modifications.
The scope is widened. It is proposed to extend the tax to all transactions in EU issued securities/instruments etc. even if no EU parties or EU financial institutions are involved. Therefore, along side the residence principle, the issuance principle is proposed. The proposal echoes the proposal for amendment of the EU Proposal issued by Anni Podimata, the (Greek) rapporteur to the EU Parliament on February 29, 2012. Also, spot transactions on currencies including non EU currencies should be taxed. In consideration of the very broaden scope, the rates of 0,1 and 0,01 % are reduced to a single rate of 0,05%.
Enlarging the taxable basis may appear as a necessity in order to limit the avoidance. The reduction of the rate may in that extended context also illustrate the willingness to reach an agreement with most if not all the Member States. If Member States may disagree on the design of the FTT, most of them may agree on the necessity to introduce a taxation as a complement to the regulation.
However, beyond the design of a EU FTT, Member States may still argue on the allocation of the revenue it will raised. The EU Proposal prohibits Member States to have a domestic FTT (such as the stamp duty or transfer tax in France) and in the meantime aims at allocating the revenue to the EU as own resource. The budget allocation issue might be the last (but not the least) arbitrage to be discussed…
- Proposal of a Council directive on a common system of a financial transaction tax and amending directive (2008/7/EC (COM 2011 0594 – (7-0355/2011/0261 (CNS)).
- Proposition de résolution Européenne sur la taxe sur les transactions financières, n° 4289.