Financial Transaction Tax
There has been much publicity in the press about the proposed EU Directive, released 28 September, to introduce a financial transaction tax (FTT).
The proposed tax would apply to all financial transactions where (a) at least one party is established in an EU Member State and (b) that one of the parties is a financial institution established in a Member State. Financial transaction is defined in Article 2 of the proposed FTT Directive to include the purchase and sale of a financial instrument including repos and securities lending/borrowing; certain transfers between group entities; and the conclusion or modification of derivative agreements. Many of the other terms defined in Article 2 are referenced back to the definitions in MiFID or the (recast) CAD and BCD (see links). Note that in addition to investment firms and credit institutions, ‘financial institution’ also includes UCITS (and the management company); Alternative Investment Funds (and the AIFMs); and pension funds (and their investment managers).
Interestingly the FTT rates will be fixed, as per Article 8, by each Member State but cannot be lower than 0.1% (or 0.01%in respect of derivatives) payable by each financial institution that is party to the transaction – although each party will be jointly and severally liable for the payment of the FTT should it turn out that the financial institution hasn’t paid up in time (immediately for electronic transactions and within three working days for all other cases). The FTT Directive, page 11, suggests that (‘depending on market reactions’) the revenues of the tax could be €57bn on a yearly basis in the whole EU.
Article 12 prohibits Member States from maintaining (or introducing) taxes on financial transactions other than the FTT – save for VAT – which would imply that it will replace stamp duty.
Article 17 tells us that it is intended that the FTT Directive will come into force on 1 January 2014. However, the proposal will need to be approved unanimously so, according to press articles, the progress and success of the Directive will be a battle/matter of negotiation between those strongly in favour (Germany and France) and those strongly against (including the UK which is threatening to use its veto).