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FTT Scale-Back On The Cards?

by Ulrika Lomas,, Brussels

03 June 2013

Official sources have suggested that the so-called EU11 group of European nations is considering a climb-down over controversial proposals for a financial transactions tax (FTT).

The European Commission's plans for a 0.01 percent tax on derivatives and a 0.1 percent rate on other financial instruments are intended to enter into force from January, 2014. At the start of this year, the European Council of Economic and Financial Affairs (Ecofin) authorized Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia, and Slovakia to progress with an FTT along the lines of the "enhanced cooperation" procedure, which enables those states wishing to work more closely together to do so.

According to Reuters, which claims to have spoken to Brussels officials linked with the project, the levy on trading bonds and shares could fall from the originally outlined 0.1 percent to just 0.01 percent. The result would be a drop in the revenue generated from EUR35bn to just EUR3.5bn.

The timetable for implementation also looks set to change. It is apparently likely that only shares will be hit by the tax from next year, while bonds will come under the regime from 2015, and derivatives at an unspecified later date.

As one official put it, "The whole thing will have to be changed quite a lot … It is not going to survive in its current form."

Sandy Bhogal, Head of Tax at law firm Mayer Brown International, believes it should come as no surprise that the EU has had to "scale back" its proposals. They have come under fire from sources as far and wide as the outgoing head of the Bank of England, Mervyn King, the International Capital Markets Association, and the Global Financial Markets Association. Common themes of apprehension include the likely extraterritorial impact, the increased costs for businesses and governments, and the potential adverse effects for the global economy. Earlier this week, European Central bank executive board member Benoît Cœuré told the Financial Times of his desire to "ensure that the tax has no negative impact on financial stability."

As Bhogal explains, "The original proposals raised lots of questions and concerns about the impact of the FTT on the cost of sovereign and corporate debt, liquidity in the EU and beyond and the potential relocation and displacement effect in the financial markets. In its proposed form, the FTT could also be viewed as being inconsistent with regulatory changes like EMIR and the general direction of travel of the EU, particularly at a time when there is a need to encourage EU economic growth and competitiveness."

A number of issues related to enforcement and the practical problems associated with collecting FTT revenue, also remain unsolved, Bhogal added. With this in mind, "the scaled back plans and step-by-step approach may be more sensible."

A spokeswoman for EU Tax Commissioner Algirdas Šemeta commented: "Depending on the speed of progress from here, it is still feasible that the common FTT could be implemented in 2014, although January 2014 is looking less likely."

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