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Šemeta Signals FTT Rate Reduction

by Ulrika Lomas,, Brussels

05 July 2013

The European Commission is prepared to consider suggestions for a lower rate of financial transaction tax (FTT) than originally planned, Algirdas Šemeta has said.

Speaking before the European Parliament, the Tax Commissioner explained that while he believes that both government bonds and pension funds should remain within the scope of any future Tobin tax, "a reduced rate, coupled with a rendezvous clause could constitute a suitable way forward which should be further examined."

Šemeta was reacting to a parliamentary vote on the proposed FTT. A resolution, adopted by 522 votes to 141 (with 42 abstentions) backed the Commission's plan for a comprehensive FTT that would cover a wide range of financial instruments. The text of the resolution retains the recommended 0.1 percent tax on stocks and bonds, and 0.01 percent on derivatives trades.

However, lawmakers also called for a phased introduction of these rates. The resolution argues that trades in sovereign bonds should be taxed at only 0.05 percent, until January 1, 2017. Similarly, trades of pension funds should be taxed at 0.05 percent for stocks and bonds, and 0.005 percent for derivatives, until the same date. Participating countries should nevertheless be able to apply a higher rate so riskier "over the counter trades," the resolution adds.

Parliament is keen that it should be more expensive to evade the FTT than to pay it. The resolution links payment of the FTT to the acquisition of legal ownership rights, with the aim of ensuring that there is no legal certainty of owning a security if a buyer does not pay the FTT.

Recent updates to the Commission's FTT webpage hinted that a six month postponement of the intended January, 2014 start date could be on the cards. Under a section titled "The way ahead," the Commission stated: "Once agreed upon at European level, participating Member States will have to transpose the [Commission's] Directive into national legislation. If agreement is found before the end of 2013, and there is a speedy transposition into national law by the participating Member States, this common framework for an FTT could still enter into force towards the middle of 2014."

Šemeta's latest comments are in contrast to statements he made last month, when he was forced to deny reports that an FTT "scale back" was on the cards. It had been thought that the tax on trading bonds and shares would drop from 0.1 percent to 0.01 percent, while a climb-down over the timetable for implementation was also thought likely, with only shares to be affected from January next year.

Šemeta said at the time that it was "really premature to say what will be the final outcome of the situation, because member states are currently in the phase of the first reading. … It's normal in the first reading that member states go through the proposal article by article and the Commission explains what each provision means." He stressed that the talks were "taking place in a constructive mood and there are various technical ideas on how to make it [the proposal] better."

France, Germany, Belgium, Spain, Portugal, Italy, Austria, Estonia, Greece, Slovakia, and Slovenia are the eleven countries to sign up to use the Commission's "enhanced cooperation" procedure as a means of introducing the FTT. Enhanced cooperation allows those European Union member states that wish to work more closely together, to do so.

The European Parliament has a consultative role on tax matters, and the so-called EU11 must now reach a deal on the FTT's final shape. According to Šemeta, a European Council working group is finalizing the reading of the Commission proposal, and the Commission has asked the new Lithuanian Presidency to continue the Council's discussion, and "come to the adoption of the compromise text as soon as possible."

"It is time for the member states to converge on the FTT to be implemented, while also protecting the spirit and purpose of this tax. I call for a constructive dialogue with all member states (participating and non-participating), to rapidly come to viable solutions. But evidently, it is now for the 11 participating member states to look for definitive solutions," Šemeta made clear.

TAGS: compliance | tax | European Commission | tax compliance | Belgium | Portugal | Slovenia | law | tobin tax | Estonia | Slovakia | agreements | legislation | tax rates | Austria | France | Germany | Greece | Italy | Spain | tax reform | trade | European Union (EU) | Lithuania | Europe

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