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Lithuania To Adopt European Union Financial Tax

by Ulrika Lomas,, Brussels

20 December 2012

Lithuania's new Prime Minister Algirdas Butkevicius has announced that the country will sign up to the European Union's Financial Transaction Tax early in 2013.

Butkevicius's comments followed a meeting with Algirdas Semeta, EU Commissioner for Taxation. Semeta explained that the FTT would be "very small," and that competition in the financial sector would mean that the tax would have only a small effect on bank costs. He also suggested that the new tax would restore public confidence in the financial sector.

Eleven EU countries have so far signed up to the tax, which was given the go-ahead by the European Commission on the principle of "enhanced cooperation." This allows a number of states to work more closely together while respecting the overall legal framework of the EU. Semeta argued in October that enhanced cooperation on the issue would strengthen the Internal Market, and would lessen complexity for businesses and investors.

The countries that have chosen to participate so far are: Austria, Belgium, Estonia, France, Germany, Greece, Italy, Portugal, Slovakia, Slovenia and Spain. The Netherlands has also expressed an interest, conditional on an exemption for pension funds.

However, some members have rejected the prospect with assessments that range from "undesirable" (the Dutch central bank) through to "dangerous" (Swedish Finance Minister Anders Borg) and "simply madness" (UK Prime Minister David Cameron).

The Dutch central bank has questioned the claim that the FTT would discourage speculation and other risky financial behavior, pointing out that it may "cause traders to relocate or to increase their risk appetite" in order to protect margins, while Sweden saw trading activity move to London when it tried a similar tax in the 1980s.

Also opposed is the Alternative Investment Managers Association, which has warned that the tax may leave the EU worse off by tens of billions of euros. The Association estimates that the tax will raise approximately EUR25bn-EUR43bn (USD32-55bn), but that the EU's GDP would be reduced by at least between 0.53% (EUR86bn) and 1.76% (EUR286bn).

TAGS: tax | investment | European Commission | banking | capital markets | tobin tax | legislation | European Union (EU) | Lithuania | Europe

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