The European Union‘s (EU) executive has unveiled its proposal for the controversial ‘Tobin tax-style’ mechanism called a financial transactions tax (FTT). The 11 eurozone states that voted for the concept last month are now much nearer to implementing the levy, which is also known as a ‘robin hood’ tax on trades.
The European Commission (EC) proposals would see states signing up to the FTT able to impose a trading tax of at least 0.1% on bonds and shares and 0.01% on derivatives with an economic link to their countries.
“On the table is an unquestionably fair and technically sound tax, which will strengthen our single market and temper irresponsible trading,” said EU tax commissioner, Algirdas Semeta.
The FTT will initially apply in France, Germany, Italy and Spain, the eurozone’s four biggest economies, as well as Austria, Belgium, Estonia, Greece, Portugal, Slovakia and Slovenia. The Netherlands has also expressed interest, but has not yet signed up.
Opponents of the FTT include the UK, where industry body the Confederation of British Industry (CBI) renewed its criticism ahead of the publication of the proposals. “The Commission’s FTT proposals are now significantly different from its initial plans, so the impact on growth and jobs must be assessed before proceeding,” said Matthew Fell, CBI director for competitive markets.
“It is particularly worrying that the increased scope of the tax will now cover businesses’ risk management activities, as well as hitting financial services in non-participating member states, like the UK, because of extra-territoriality.”
The UK-based Investment Management Association (IMA) noted that the UK is not among the 11 countries that signed up to the tax, but Julie Patterson, its director of authorised funds and tax, commented: "UK investors, pensions and funds will suffer the effects of the tax if they invest in securities from these countries, or if they undertake transactions with counterparts in those countries. Moreover, unlike stamp duty on UK equities, the tax will apply twice to every transaction - for the seller and for the buyer.
"It is important to ensure that the tax doesn't hit every transaction multiple times when intermediaries are involved. It is not uncommon for there to be be four or more intermediaries involved in a transactiom, making what appears on the surface to be a 0.1% tax significantly more substantial."
According to a 'Financial Times' report, a coalition of US business organisations that includes the US Chamber of Commerce (USCC) and the Financial Services Forum (FSF) has also attacked “the unilateral imposition of a global financial transaction tax (FTT)”, in a letter addressed to the EU’s Semeta.
"These novel and unilateral theories of tax jurisdiction are both unprecedented and inconsistent with existing norms of international tax law and long standing treaty commitments,” the groups write.
“There is a high risk that their adoption could lead to double and multiple taxation, a deterioration of international tax co-operation and trade protectionism.”
SIX Financial Information swiftly responded by announcing Italian FTT services, pointing out that in addition to applying FTT to shares and similar instruments from 1 March 2013, Italy also plans to include derivatives with taxable shares as underlyings from 1 July 2013.
"Financial intermediaries will be challenged to identify the country specific transaction taxes on derivatives, due to the high number and complexity of these products," said Jacob Gertel, senior project manager - legal and compliance data at SIX Financial Information.