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Price Bill Would Stop EU FTT Enforcement In US

Mike Godfrey, Tax-News.com, Washington

05 December 2012


Tom Price (R - Georgia), Chairman of the Republican Policy Committee, and a member of the House Ways and Means and the Budget Committees, has introduced a bill in the United States House of Representatives opposing the operation of another country’s financial transaction tax (FTT) on American financial markets.

With particular reference to tax proposals in the European Union (EU) and France, Price’s legislation prohibits the Treasury Secretary from "assisting any foreign government with respect to the collection of an FTT on securities transactions occurring on a US exchange or over the counter within the US, notwithstanding the nationality of the issuer of such security, the residence of any party to the transaction, or any existing tax treaty provision to the contrary."

At the most recent G20 summit, EU leaders pushed the idea of an FTT, and its member states have been moving toward using enhanced cooperation to introduce such a tax. Being introduced as early as next year, a 0.1% tax would be imposed on transactions in shares and bonds and a 0.01% levy imposed on transactions involving derivative products.

In a letter to the US Treasury last month, US financial sector associations were concerned that the EU FTT is designed to be extraterritorial, and that, as such, it "would collect revenue from financial markets and investors around the world to which the EU countries that support the tax have little or no connection. The extremely broad concept of residency embedded in the EC proposal would extend the EU FTT to many transactions occurring within the US."

It is argued that the residence principle, as defined in the EC proposal and aimed at reducing the risk of tax avoidance through the geographical relocation of transactions outside the EU, "allows for the trading activities of financial institutions resident in the EU to be taxed, even if such transactions are carried out in third countries."

As confirmed by the EC, "it does not matter where a transaction is carried out but who the transaction partners are." Most financial institutions trading in the EU typically need to be authorized and are therefore deemed to be established in the EU. The only possibility for EU resident entities to avoid the proposed tax would be to relocate themselves to third countries completely or through the formation of subsidiaries, and in both cases give up their European customer base.

In addition, the proposed House bill would also protect securities transactions in the US from enforcement of the 0.2% FTT imposed by France on equity transactions – particularly its extension later this year to secondary market trading in American Depository Receipts that trade in concert with the value of an underlying French security, despite the fact that they can be transacted between US investors wholly within the US, and that the US income tax treaty with France was designed to prevent extraterritorial application of stock transaction taxes.

In a statement, Price said that "paying taxes to other countries is a bad idea – and we need a law to stop it. This FTT would harm small businesses and investors while damaging American entrepreneurs’ ability to compete in a competitive global environment."

“France and other EU nations want to charge more taxes on financial transactions, ignoring the fact that small investors will be forced out of capital markets," he added. "This move would impede financial markets efficiency, decrease liquidity, distort and discriminate within markets, and raise costs, all at a time when what our economy desperately needs is more private capital investment in growth and job creation."

He urged Congress to act on behalf of American businesses and investors and pre-empt the imposition of any form of an FTT on American markets.

TAGS: tax | investment | business | law | financial services | capital markets | equity investment | tobin tax | enforcement | legislation | stock exchanges | tax rates | France | United States | alternative investment | European Union (EU) | services | Europe

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