The EU Parliament endorses tax on financial transactions

Algirdas Šemeta, Member of the European Commission in charge of Taxation, Customs, Statistics, Audit and Anti-Fraud, gave a press conference to present the details of the Financial Transaction Tax (FTT), which will be implemented under enhanced cooperation. As requested by the 11 Member States that will proceed with this tax, the proposed Directive mirrors the scope and objectives of the original FTT proposal put forward by the Commission in September 2011. (EC Audiovisual Services).

The European Parliament yesterday gave its final go ahead for the introduction of the Financial Transaction Tax (FTT) to be applied in the 11 Eurozone member states, which had initially accepted this Commission proposal. The European Parliament has a consultative role on tax matters. Consequently now it’s up to the 11 participating countries in this enhanced cooperation arrangement to reach a final deal. The 11 participating member states are: Austria, Belgium, Estonia, France, Germany, Italy, Greece, Portugal, Slovakia, Slovenia and Spain. Any other member state may join the enhanced cooperation, if they wish so.

Only 11 EU member states agreed

At this point it must be noted that last summer it became clear that there was insufficient support for the introduction of a financial transaction tax throughout the EU as proposed by the EU’s executive arm. Since then, eleven member states have requested from the Commission to present a proposal for enhanced cooperation on a FTT, specifying its scope and objective along the lines of the Commission’s original proposal. Enhanced cooperation can be launched at the request of at least nine member states.

On 22 January 2013, the Ecofin Council adopted a decision authorising the above mentioned eleven member states to go ahead with the enhanced cooperation on the introduction of the FTT. By that time the European Parliament had already authorised the introduction of this new levy. Yesterday the Parliament’s plenary gave its final green light accepting the text of a relevant resolution with 522 votes to 141, with 42 abstentions. The legislators introduced some minor changes enhancing the scope of the FTT.

Enhanced scope

The adopted text introduces provisions to make evading the FTT potentially far more expensive than paying it. The text links the payment of the FTT to the acquisition of legal ownership rights. This means that if the buyer of a security did not pay the FTT, there would be no legal certainty of owning that security and the trade could not be cleared centrally.

In any case the Parliament yesterday kept up the pressure for this comprehensive financial transaction tax in those 11 EU countries. The legislators agreed to a wide scope of the new tax and accepted rates of 0.1% for trades in stocks and bonds and 0.01% for those in derivatives. Lower rates should apply until 1 January 2017 for trades in sovereign bonds and pension fund industry trades.

In this respect the Parliament’s resolution provides that trades in sovereign bonds should be only taxed at 0.05% until 1 January 2017 and, up until the same day, trades of pension funds would be taxed at 0.05% for stocks and bonds and 0.005% for derivatives. It adds that when evaluating the FTT’s performance, the European Commission should pay special attention to the rate of taxation applied to pension funds.

In the case of derivatives though it is rather difficult to apply this tax because those financial products are not traded on official markets like stock exchanges. For example the Credit Default Swaps and credit derivatives are sold over the counter without the intervention of a structured market or an official clearing house.

According to the Press release issued by the Parliament, Anni Podimata (S&D, EL), Parliament’s lead MEP on the matter, welcomed the house’s tenacity. “Parliament has stayed true. We have taken a consistent line. We strongly believe that such a tax is the way the sector can contribute to emerging from the crisis and returns to its proper job of serving the real economy”, she said.