Comments from the Austrian finance minister, Hartwig Loeger, in an interview with Bloomberg on 4 September 2018, highlight the lack of progress made by the group of member states seeking to take forward the EU financial transaction tax (FTT). We have grown accustomed to disparaging statements from many quarters on the FTT proposal and Mr Loeger’s statements only reiterate the continuing challenges facing the project.
For Mr Loeger, the abandonment of the principles included in the European Commission’s original proposal for a union-wide FTT is troubling. The proposal, initially published on 28 September 2011, included plans to harmonise the tax base and set minimum rates for all transactions in financial instruments and derivatives carried out over-the-counter or on organised financial markets between financial institutions where at least one party is established or deemed to be established in the EU.
In Mr Loeger’s opinion, following years of seemingly unsuccessful meetings between the finance ministers of the countries still pursuing the FTT, there is ‘precious little meat left for a financial transaction tax’.
The proposed scope of the FTT has been a point of contention since its inception.
The extra-territorial provisions of the FTT have been a central battleground; as witnessed, for example, in the UK government’s legal challenge to the decision of the EU Council of 22 January 2013 (Case C-209/13), authorising the use of the ‘enhanced cooperation’ procedure in relation to the FTT.
Both the ‘issuance principle’ (which brings within the scope of the FTT financial instruments issued in the FTT-zone regardless of where they are traded or where the parties to the transaction are established so long as a financial institution is party to the transaction), and the ‘residence principle’ (which brings within the scope of the FTT any financial institution that transacts with an entity which has a legal or physical presence in the FTT-zone or that has authority to operate there), are clear examples of the extra-territorial effect of the FTT.
To date it remains unclear whether derivative transactions in particular will be taxed in accordance with the controversial ‘issuance’ and ‘residence’ principles which, given derivatives account for more than half of the projected revenue from the FTT, represents a fundamental obstacle to the progression of the FTT project.
Linked to the extra-territorial effect of the FTT, concerns remain in relation to the enforcement of the tax, particularly where financial institutions are outside of the FTT-zone.
It is not clear how enforcement of the FTT would work in relation to the UK in the case of a ‘hard’ Brexit.
There is also some anxiety about the risk of double taxation where the FTT could operate alongside unharmonised tax regimes in other jurisdictions (e.g. UK stamp duty).
It is clear from recent meetings of the participating member states that there is discord on the fundamental principles of the FTT.
In February 2017, reports emerged suggesting that support amongst the remaining participants was waning and that conflicting approaches to the treatment of pension funds under the proposed tax could not be resolved.
Mr Loeger is right to be concerned about the ability of the group to agree a future for the FTT and the political landscape will play its part. Press reports coming out of the informal meeting of finance ministers in Estonia on 16 September 2017 suggested that member states expressed concerns over the potential impact of the FTT on their efforts to attract London-based banks and other financial institutions post-Brexit.
The simplified Franco-German FTT proposal in the joint ‘Economic road map’ is, according to Mr Loeger, a possible alternative to the Commission’s proposal. This form of FTT would be based on the existing French financial transaction tax and would focus on taxing transactions of domestically issued equity (and possibly equity derivatives), which, according to the road map, ‘has not led to evasive shifts to other financial products or disruptions on financial markets’. As yet, there is no detail about how this type of tax would work on an EU-wide basis.
For now, the FTT continues to flounder and there appears to be much disagreement and little appetite for compromise between the participating member states.
Home >Articles > EU’s financial transaction tax: where are we now?
EU’s financial transaction tax: where are we now?
Comments from the Austrian finance minister, Hartwig Loeger, in an interview with Bloomberg on 4 September 2018, highlight the lack of progress made by the group of member states seeking to take forward the EU financial transaction tax (FTT). We have grown accustomed to disparaging statements from many quarters on the FTT proposal and Mr Loeger’s statements only reiterate the continuing challenges facing the project.
For Mr Loeger, the abandonment of the principles included in the European Commission’s original proposal for a union-wide FTT is troubling. The proposal, initially published on 28 September 2011, included plans to harmonise the tax base and set minimum rates for all transactions in financial instruments and derivatives carried out over-the-counter or on organised financial markets between financial institutions where at least one party is established or deemed to be established in the EU.
In Mr Loeger’s opinion, following years of seemingly unsuccessful meetings between the finance ministers of the countries still pursuing the FTT, there is ‘precious little meat left for a financial transaction tax’.
The proposed scope of the FTT has been a point of contention since its inception.
The extra-territorial provisions of the FTT have been a central battleground; as witnessed, for example, in the UK government’s legal challenge to the decision of the EU Council of 22 January 2013 (Case C-209/13), authorising the use of the ‘enhanced cooperation’ procedure in relation to the FTT.
Both the ‘issuance principle’ (which brings within the scope of the FTT financial instruments issued in the FTT-zone regardless of where they are traded or where the parties to the transaction are established so long as a financial institution is party to the transaction), and the ‘residence principle’ (which brings within the scope of the FTT any financial institution that transacts with an entity which has a legal or physical presence in the FTT-zone or that has authority to operate there), are clear examples of the extra-territorial effect of the FTT.
To date it remains unclear whether derivative transactions in particular will be taxed in accordance with the controversial ‘issuance’ and ‘residence’ principles which, given derivatives account for more than half of the projected revenue from the FTT, represents a fundamental obstacle to the progression of the FTT project.
Linked to the extra-territorial effect of the FTT, concerns remain in relation to the enforcement of the tax, particularly where financial institutions are outside of the FTT-zone.
It is not clear how enforcement of the FTT would work in relation to the UK in the case of a ‘hard’ Brexit.
There is also some anxiety about the risk of double taxation where the FTT could operate alongside unharmonised tax regimes in other jurisdictions (e.g. UK stamp duty).
It is clear from recent meetings of the participating member states that there is discord on the fundamental principles of the FTT.
In February 2017, reports emerged suggesting that support amongst the remaining participants was waning and that conflicting approaches to the treatment of pension funds under the proposed tax could not be resolved.
Mr Loeger is right to be concerned about the ability of the group to agree a future for the FTT and the political landscape will play its part. Press reports coming out of the informal meeting of finance ministers in Estonia on 16 September 2017 suggested that member states expressed concerns over the potential impact of the FTT on their efforts to attract London-based banks and other financial institutions post-Brexit.
The simplified Franco-German FTT proposal in the joint ‘Economic road map’ is, according to Mr Loeger, a possible alternative to the Commission’s proposal. This form of FTT would be based on the existing French financial transaction tax and would focus on taxing transactions of domestically issued equity (and possibly equity derivatives), which, according to the road map, ‘has not led to evasive shifts to other financial products or disruptions on financial markets’. As yet, there is no detail about how this type of tax would work on an EU-wide basis.
For now, the FTT continues to flounder and there appears to be much disagreement and little appetite for compromise between the participating member states.
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