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France Goes Solo On FTT

by Ulrika Lomas,, Brussels

03 August 2012

Embarking on a lonely and uncertain course, France’s long-awaited, much debated tax on financial transactions finally entered into force on August 1.

Supposedly prefiguring the introduction of a mechanism at European level, a 0.2% tax is to be imposed on transactions in French securities where stock market capitalization exceeds EUR1bn (EUR1.23bn), and a 0.01% tax is to be levied on credit default swaps and on speculative “automated” trading.

Although the idea is certainly not new, and has been debated at great length within the European Union (EU) during the crisis and indeed at G20 level, proceeding unilaterally is nevertheless a bold step to take for France. Despite strong backing from countries such as Germany and Austria, France will be the first eurozone member to take the plunge and adopt the levy.

Adopted within the framework of the country’s second 2012 supplementary finance bill, only very recently definitively passed by lawmakers, the provision faded into the background and gained little attention on its passage through parliament, despite French President-elect François Hollande’s decision to double the tax to 0.2%.

With the focus on Hollande’s plans to tax the rich and to controversially repeal fiscal measures emblematic of former French President Nicolas Sarkozy’s five-year term in office, the financial transactions tax faded undoubtedly into the background having little bearing on consumers. The measure has actually fallen on fertile soil in these economically tough times.

Expected to yield around EUR170m in additional fiscal revenues for the state this year and around EUR500m annually from 2013, the tax serves the dual purpose of on the one hand curbing speculation, and on the other redressing the country’s public finances.

In a rare display of unanimity both France’s left wing and conservative parties champion the tax. Under the earlier government of Jospin, the Tobin tax was defended as a means with which to curb excessive market fluctuations. In more recent times, the levy has been supported as a means to ensure that the financial sector contributes to overcoming the debt crisis.

Under the initial plans of Nicolas Sarkzoy, a 0.1% tax was to be imposed on financial transactions, if possible at global level, otherwise at least at EU level. Championing the idea of such a tax to finance development, Sarkozy had long insisted that the levy is not only technically feasible but also financially indispensable and “moral”.

However, staunch and unrelenting opposition from the UK and Sweden put paid to Sarkozy’s original plans that the European Commission’s September proposal could be adopted across the EU.

Under plans outlined by the European Commission in September 2011 a 0.1% tax would be imposed on the trading of shares and bonds, while a 0.01% rate would apply to other products. To mitigate the risk of relocation, the levy would be imposed on the financial institution at their place of residence. The tax would apply in all 27 EU member states from January 1, 2014.

In the run up to the presidential elections at the beginning of the year, determined to attract voters, Sarkzoy renewed the drive for the tax in France, advocating accelerating implementation of the levy and insisting that France would not wait for a consensus on the tax, a priority for his last term in office, and would proceed unilaterally if ultimately unable to rally its European partners.

Following his election victory, Socialist President Hollande took up the gauntlet and made the measure his own by doubling the planned tax to 0.2%.

All eyes will now be firmly on France, waiting to see what the effects of the tax will be, whether it will lead to companies relocating or a circumvention of the charge.

TAGS: tax | investment | speculation | law | capital markets | equity investment | tobin tax | legislation | France | European Union (EU) | Europe

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