By Anne Plested, EU Regulation Change at ION Markets, Fidessa.
A Europe-wide financial transaction tax (FTT) was initially proposed by the European Commission (EC) in September 2011. The aim was to avoid an uncoordinated patchwork of national taxes and take a standard approach across Europe. In the aftermath of the financial crisis, this type of bank levy was politically highly attractive for many individual states. Transaction taxes would not only force the financial sector to make a fair and hefty contribution to public finances, they would also discourage transactions that were seen as not contributing to the real economy.
Put forward as the tax that could raise €57 billion per year if implemented across the whole EU, nothing has been finalised despite almost 8 years of discussions. Common agreement on the proposals was ruled out as early as 2012, when just 11 of the 28 EU countries requested enhanced cooperation to move ahead with the initiative. Progress appears to be slow. As momentum has waned under the tsunami of regulation washing over the region in recent years, an outsider might assume that the idea had been all but quashed. However, this spring the supporting states announced some progress and there remains a determination to push through to implementation.
Belgium, Germany, Greece, Spain, France, Italy, Austria, Portugal, Slovenia, and Slovakia still support the project. The FTT zone of now 10 participating countries would plough the proceeds, potentially around €35 billion per year, back into their economies. Estonia withdrew its support in early 2016 after weighing the costs of implementation and collection against the expected returns. Having done the math, Slovenia has indicated that it may follow suit.
Most EU opponents of the FTT, such as the UK, would generally support such a tax as a global initiative, but they view anything regional as a competition risk for Europe. Scope and exemptions are another area of disagreement. However, most of the opposing states appear to be divided and remain on the fence, leaving the path open to join up later. All of them continue to monitor progress.
Meanwhile, in the early years following the proposal France and Italy went ahead and introduced their own FTTs. Their experience provides some helpful tips on the practicalities and pitfalls of implementation, and some useful insight into the fallout. With France observing a loss of business and a negative effect on share prices, the designers of the EU version can hopefully learn from that.
In fact, the most recent progress report cited the French tax as the model for the way forward. It’s also worth noting that under the original proposed Directive, the participating states will not be allowed to introduce taxes on financial transactions other than this FTT (and VAT). So it seems likely that the French and Italian FTTs will adapt to the EU proposal if adopted. Of course, many important details are yet to be defined. Not least the instruments in scope for the application of the new tax, the criteria for calculating it, and all the operational implications and collection responsibilities.
Consultation on the proposal is ongoing with the European institutions. Although all member states can take part in the discussions, only those participating in enhanced cooperation will have a vote and they must agree unanimously before anything can be implemented. So as finance ministers from participating countries continue to debate the technical points, a tax originally planned for 2016 now looks unlikely to come into force before 2020.