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The European Commission's proposed financial transaction tax (FTT) would have "unprecedented extraterritorial impacts," a number of trade associations have warned in a letter to the G20 finance ministers.
Representatives of the Australian Financial Markets Association (AFMA), the Global Financial Markets Association (GFMA), the Investment Industry Association of Canada (IIAC), the Japan Securities Dealers Association (JSDA), and the Korea Financial Investment Association (KOFIA) composed the letter to "express strong opposition" to the measure. A request is made that the ministers also resist the proposals.
Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia are progressing with plans for an FTT along the lines of "enhanced cooperation." This procedure, which enables those states wishing to work more closely together to do so, was authorized by the European Council of Economic and Financial Affairs (Ecofin) in January. Under the European Commission's plans, all share and bond transactions will be taxed at a rate of 0.1%, and derivatives transactions at 0.01%. The tax is intended to apply from January, 2014.
The letter claims that the FTT would apply to transactions well beyond this EU11. Transactions where either the buyer or seller is resident in an EU11 country, the security was issued in an EU11 country, or an EU11 financial institution, or any of its foreign branches, is involved in the transaction, will be affected. According to the letter, this means that "the FTT would apply to the sale of corporate bonds of a French company by a Japanese bank to a Canadian bank through a US dealer-broker." The FTT therefore "conflicts with repeated calls by the G20 to avoid measures exhibiting extraterritorial effects."
The cost of equity and debt financing for both governments and businesses will increase, as will the cost of hedging transactions undertaken in the real economy to manage risk, the letter also warns. Because the FTT is intended to apply to a broad range of transactions, it is feared that the adverse effects on the global economy will be multiplied.
With global markets remaining fragile, "now is not the time to experiment with policies that will fragment markets, increase market volatility, harm savings, and impede growth," the letter stresses.
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