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Opinion Divided On EU Transaction Tax

by Ulrika Lomas,, Brussels

05 October 2011

Austrian Chancellor Werner Faymann has welcomed the proposal, put forward recently by European Commission President José Manuel Barroso, for a Europe-wide tax on financial transactions from 2014. However, the German banking industry association has considerable doubts, from both a legal and a practical perspective, whether an approach of this kind can succeed.

Alluding to the fact that Barroso’s proposal, which aims to impose a levy on the purchase and sale of all types of financial securities (shares, bonds and derivatives), is broadly consistent with a similar proposition long-since championed by Austria, Faymann underlined that as a result of the plans, the financial markets would finally contribute more towards the stability of state budgets.

Noting that, in accordance with the proposals, transactions involving shares and bonds would be taxed at a rate of 0.1%, while derivatives would be subject to a 0.01% rate, Faymann revealed that the levy could serve to yield additional fiscal revenues for Austria’s state budget of between EUR500m and EUR1bn annually. It is essential to make clear however, the Chancellor insisted, that the tax should be used to benefit national budgets.

Referring to Barroso’s proposal as one of the most important steps so far towards greater tax equity in Europe, Chancellor Faymann concluded his statement by emphasizing that the proposal should now therefore be implemented as quickly as possible.

Austria’s Finance Minister Maria Fekter also wholeheartedly welcomed the EU Commission President’s backing of a financial transactions tax, underscoring that former Austrian Vice Chancellor and Finance Minister Josef Pröll championed the tax during a European Union Economic and Financial Affairs Council (Ecofin) meeting held in Brussels in September last year.

Underlining the fact that taxpayers in the whole of Europe have made a significant contribution to the stabilization of the financial sector, Fekter explained that it therefore makes economic sense, to avoid future crises, if the financial sector now makes its contribution to the costs within the framework of a financial transactions tax.

Yet in stark contrast, the Association of German Banks (Bundesverband deutscher Banken – BdB) warned recently against implementation of a European tax on financial transactions, insisting that the very idea is a mistake.

Commenting on Barroso’s proposal Michael Kemmer, General Manager of the association stated that: “The decision to introduce a European financial transactions tax is a mistake. A tax of this kind will damage the European financial industry and, in the final analysis, even threaten economic growth”. Kemmer noted that it was with good reason that the International Monetary Fund and national central banks have always rejected the idea of such a tax.

In its statement, the BdB defends its position, noting that: “Neither at international nor EU level is there a sustainable consensus on a financial transactions tax. In Europe, the UK in particular, which is home to Europe's biggest financial centre, has come out firmly against the tax.”

It continues: “According to the European Commission's current plans, avoidance of the tax to the detriment of the affected financial markets would be countered by a very broadly defined 'principle of location'. There are considerable doubts, from both a legal and a practical perspective, whether an approach of this kind can succeed in preventing avoidance action at the expense of countries subject to the tax.”

It concludes: “This calls the expected increase in revenues into question. The consequences of the financial transactions tax are therefore clear. Market participants will relocate outside Europe or, if this is not possible, their international competitiveness will be irreparably damaged.”

TAGS: tax | investment | business | European Commission | law | banking | financial services | capital markets | forex | international financial centres (IFC) | budget | offshore | offshore banking | Austria | services | Europe

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