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Austria Welcomes Commission's FTT Proposal

by Ulrika Lomas, Tax-News.com, Brussels

15 February 2013


Austria’s Finance Minister Maria Fekter has recently welcomed the European Commission’s proposal on a financial transactions tax (FTT), emphasizing that the levy "represents a big achievement for Austria."

The European Commission is submitting a draft directive on a tax on financial transactions in the 11 countries that had already agreed to cooperate more closely in this area. In addition to Austria, Belgium, Germany, Estonia, Greece, France, Italy, Portugal, Slovenia, Slovakia and Spain have expressed support for introducing a tax on financial transactions through the so-called enhanced cooperation procedure.

The tax is due to apply from January 2014. Share and bond transactions are to be taxed at a rate of 0.1%, whereas derivatives transactions are to be taxed at a rate of 0.01%.

The 11 finance ministers of the participating member states will now have to reach unanimous agreement on the proposal within the European Union's (EU's) Ecofin Council so that actual implementation can begin.

Fekter said: "Austria has advocated the introduction of a tax on financial transactions from the very outset. This proposal by the European Commission brings us significantly closer to our goal."

The minister added: "The draft that has now been tabled absolutely corresponds to the model envisaged by Austria, and it has also been amended to include the so-called 'share issue principle.' What this means is that transactions involving securities issued in a participating member state will be subject to the tax. This will prevent tax evasion to a great extent."

The Austrian Finance Minister expressed praise for the broad assessment basis of the tax, which would cover both transactions on the stock exchange and over-the-counter (OTC) or off-market transactions.

The minister ended: "Our perseverance has paid a dividend – the tax on financial transactions has been worth fighting for."

Austria is expecting annual revenues derived from the tax of at least EUR500m (USD667m).

The details of the financial transaction tax (FTT) to be implemented under enhanced cooperation have recently been set out in a proposal adopted by the European Commission.

The proposed Directive mirrors the scope and objectives of the original FTT proposal put forward by the Commission in September 2011. The approach of taxing all transactions with an established link to the FTT-zone is maintained. When applied by the 11 member states, this financial transaction tax is expected to deliver revenues of EUR30-35bn a year.

There are certain limited changes compared to the original FTT proposal, to take into account the fact that the tax will be implemented on a smaller geographical scale than originally foreseen. These changes are mainly to ensure legal clarity and to reinforce anti-avoidance and anti-abuse provisions.

Commenting, Algirdas Šemeta, Commissioner responsible for Taxation, explained that "everything is in place to enable a common financial transaction tax to be become a reality in the EU."

Šemeta pointed out: "On the table is an unquestionably fair and technically sound tax, which will strengthen our Single Market and temper irresponsible trading. Eleven member states called for this proposal, so that they can proceed with the FTT through enhanced cooperation. I now call on those same member states to push ahead with ambition – to drive, decide and deliver on the world's first regional FTT."

The Commission’s proposal follows EU Finance Ministers' agreement last month to allow the 11 member states to move ahead with an FTT under enhanced cooperation.

There are three core objectives to the FTT. First, it will strengthen the Single Market by reducing the number of divergent national approaches to financial transaction taxation. Secondly, it will ensure that the financial sector makes a fair and substantial contribution to public revenues. Finally, the FTT will support regulatory measures in encouraging the financial sector to engage in more responsible activities, geared towards the real economy.

As in the original proposal, the tax will have a wide base and safety nets against the relocation of the financial sector. As before, the "residence principle" will apply. This means that the tax will be due if any party to the transaction is established in a participating member state, regardless of where the transaction takes place. This is the case both if a financial institution engaged in the transaction is, itself, established in the FTT-zone, or if it is acting on behalf of a party established in that jurisdiction.

As a further safeguard against avoidance of the tax, the latest proposal also adds the "issuance principle," meaning that financial instruments issued in the 11 member states will be taxed when traded, even if those trading them are not established within the FTT-zone. Furthermore, explicit anti-abuse provisions are now included.

As in the original proposal, the FTT will not apply to day-to-day financial activities of citizens and businesses (e.g. loans, payments, insurance, deposits etc.), in order to protect the real economy. Nor will it apply to the traditional investment banking activities in the context of the raising of capital or to financial transactions carried out as part restructuring operations.

The proposal also ring-fences refinancing activities, monetary policy and public debt management. Therefore, transactions with central banks and the European Central Bank, with the European Financial Stability Facility and the European Stability Mechanism, and transactions with the European Union, will be exempted from the tax.

The proposed Directive will now be discussed by member states, with a view to its implementation under enhanced cooperation. All 27-member states may participate in the discussions on this proposal. However, only the member states participating in enhanced cooperation will have a vote, and they must agree unanimously before it can be implemented. The European Parliament will also be consulted.

TAGS: Finance | tax | investment | business | European Commission | Belgium | Portugal | Slovenia | banking | financial services | capital markets | insurance | equity investment | Estonia | Slovakia | Austria | France | Germany | Greece | Italy | Spain | services | Europe

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