The Council of the European Union has published a “State of play” on the Commission’s proposal for a Directive on enhanced cooperation on a financial transaction tax (FTT), between Austria, Belgium, France, Germany, Greece, Italy, Portugal, Slovakia and Spain.

The State of play looks briefly at June’s ECOFIN meeting, before concentrating on (a) the output from the Working Party on Tax Questions meeting that took place on 25 October 2016; and (b) next steps.

The core engine of the FTT: although more work is required, the participating Member States seem to have reached agreement about the 7 basic “building blocks” that will form the “core engine” of the FTT:

  1. Territoriality: for shares, this will depend on “residence and issuance principles” – “as a first step harmonized taxation will only be applied to shares of the participating Member States. After a transition period it shall be extended to all shares unless participating Member States decide otherwise“. For derivatives, the Commission’s proposals of 28 September 2011 seem to have been accepted for now;
  2. Tax base for derivatives: a number of principles are being considered. For example, for options, the tax might be based on the premium paid for the option; whilst for other derivatives it might be based on the term adjusted (if there’s a maturity date) “notional amount / market value“;
  3. Scope of derivatives: all derivatives will be taxed except: (a) (for a transitional period) “products with public debt to 100% as direct underlying“; and (b) repos, reverse repos, and the transactions of public debt managers and their counterparties;
  4. Market making for shares: there’ll be a reduced rate (80% of normal) for market makers that are contractually bound to carry out market making activities in specific shares at a particular venue;
  5. Taxation event for securities: “transaction of gross transactions“;
  6. Transaction chain: “all transactions in the chain except agents and clearing members (when acting as facilitators)“;
  7. Real economy and pension funds: more analysis is required.

Cost-efficient collection: the participating Member States have 2 objectives: (a) to collect “adequate revenue at low administrative costs“; and (b) to ensure the “financial viability of the tax for each country“. They are considering a model that will combine self-assessment and centralized tax collection, with the final decisions to be made when the design of the tax has been settled.

Next steps: … further work at the Council and its preparatory bodies will be required, before a final agreement … can be reached …” In the meantime the Committee of Permanent Representatives is invited to recommend to the Council that it takes note of the progress that’s been made so far, and discusses the current state of play.

There’s more information about the background to this tax in our earlier post.